Professional Documents
Culture Documents
NEW DELHI
STUDY MATERIAL
CLASS XI
ACCOUNTANCY
2012-13
Prepared by
KENDRIYA VIDYALAYA
PREFACESANGATHAN:
AHMEDABAD REGION
preparation
of
Accountancy.
study
material
for
class
XI
(P.DEVAKUMAR)
DEPUTY COMMISSIONER (K.V.S.)
AHMEDABAD REGION
Chief Patron
2
Shri P. Devakumar
Deputy Commissioner, KVS, RO, Ahmedabad Region
PatronS
Sh. P. Madan
Assistant Commissioner, KVS, RO, Ahmedabad Region
&
Sh. Y. P. Singh
Assistant Commissioner, KVS, RO, Ahmedabad Region
MEMBERS OF COMMITTEE
S.N
O.
NAME OF
MEMBER
DESIGNATI
ON
NAME
OF K.V.
SH.D.K.GUPTA
PRINCIPAL
09726633727
gupta0504dk@yahoo.co.in
SH.PRASHANT
WADODKAR
PGT
(COMMERCE)
SH.RAJU
GOSWAMI
SH. N. C.
KHAMBhATI
PGT
(COMMERCE)
PGT
(COMMERCE)
SH.KAUSHIK
R.DALVI
PGT
(COMMERCE)
SH.B.S.SRIVASTAV
A
PGT
(COMMERCE)
K.V.No.4,
ONGC,
BARODA
K.V.BSF,
DANTIWAD
A
K.V.ONGC
MEHSANA
K.V.NO.2
EME
BARODA
K.V.NO.2,
ARMY
BHUJ
K.V.NO.1
HARNI
ROAD,
BARODA
09558843751
prashantwadodkar@yahoo.com
09913151533
rgoswami12359@rediffmail.com
09998633110
niravckhambhati@yahoo.in
09427463999
kaushikdalvi123@gmail.com
09016997600
srivastava.bholendra1@gmail.com
INDEX
S.NO.
1
2
3
4
5
6
7
8
UNIT
I. Introduction to Accounting
II. Theory Base of Accounting
III. Recording of Transactions
IV. Preparation of Ledger, Trial Balance and Bank Reconciliation Statement
V. Depreciation, Provision & Reserves
VI. Accounting for Bills of Exchange
VII.Rectification of Errors
VIII.
Financial Statements of Sole Proprietorship
IX. Financial Statement for Non Profit Organisations
X. Accounts for Incomplete Records
XI. Computers in Accounting
List of Project Works(Courtesy CBSE)
Blue Print of Question Paper
Sample Question Papers(Courtesy CBSE)
PAGE NO.
4
8
15
35
65
83
9
111
10
114
11
12
123
13
14
137
144
148
149
150
Unit :1
Introduction to accounting
Unit at a Glance: Introduction
Book keeping
Meaning of accounting
4
There's no business like show business, but there are several businesses like accounting.
Introduction:
Accounting has greater discipline than book keeping. It includes conceptual knowledge of the subject
and applications also.
BOOK KEEPING:-It involves journal, ledger, cash book and other subsidiary books, it cannot
disclose the results of Business.
Meaning of Accounting:-It is process of identifying, measuring, recording and communicating the
financial information.
Difference between Bookkeeping and accountancy:
Book keeping does not show the net result and accountancy shows net result of the business.
Economic Events:All events which can be measured in monetary Terms are known as Economic events. (Salary paid to
employees, Goods purchased from creditors, cash withdrew from bank)
CHANGING ROLE OF ACCOUNTANCY
1. As a language to communicate information an enterprises.
2. To provide valuable information for judging management ability.
3. To provide quantitative information this is useful in economic decision.
Process of accounting
1. Identification of the economic events. (Selection of important event)
2. Classification of the business transaction (Assets, liability, expenses, income).
3. Measurement in terms (Monetary value transaction.),
4. Recording of business transactions (As per accounting principal)
5. Summarizing the business transaction (Journal, ledger, trial balance and Balance sheet.)
6. Analysis and interpreting the business transactions. (Various reports, ratio etc.)
7. Communication (provide information to internal and external users.)
Users of financial statements:
1. Internal users :- (Owners, shareholders, investors, creditors, employees, customers, management.)
2 External users: - (Regulatory agencies, labor union, stock exchange, public and others)
BRANCHES OF ACCOUNTING
5
1.
2.
3.
4.
5.
Objectives of Accounting
1. Provides information in systematic way.
2. Enables to get profit or loss of business during certain profit.
3. Shows the actual position of the business.
BASIC ACCOUNTING TERMS
1. Entity:- It means existence of an individual which includes two things 1.Business entity
2. Non business entity.
2. Transactions: - Exchange of goods and services for consideration.
3.Assets:- These are properties or economic resources of an enterprises which can be expressed in
monetary terms it can be divided in two parts 1.Fixed assets( more than 1 year period) 2. Current
assets(less than 1 year period)
4. Liabilities:-These are certain obligations or dues which firm has to pay.
5. Capital: It is an essential investment for commencement of every business.
6. Sales: It can be credit or cash, in which goods are delivered to customers.
7. Revenues:-It is the amount which is earned by selling of products.
8. Expenses:-It is known as cost of assets consumed or services which used.
9. Expenditure:-It means spending money for some benefit.
10. Profit: - Excess of revenues over expenses is called profit.
11. Gain: - It generates from incidental transaction such as sales of fixed asset, winning of court case.
12. Loss: - Excess of expenses over income is termed as loss.
13. Discount:-It is defined as concession or deduction in price of goods sold.
14. Voucher:-It is known as evidence in support of a transaction.
15. Goods: - It refers all the tangible goods (Raw material, work in progress, finished goods.)
16. Drawings: - Amount of goods or cash which is withdrawn from business for personal use.
17. Purchases: - It means of procurement of goods on credit or cash.
18. Stock: - It is a part of unsold goods. It can be divided into two categories.
1.Opening stock
2. Closing stock.
19 Debtors: - There are persons who owe to an enterprise an amount for buying goods and services
on credit.
20. Creditors: - These are persons who have to be paid by an enterprise an amount for providing the
enterprise goods and services on credit.
Questions:
1.
Write any two users of financial statements.
ANS: - 1.Public
2.Regulatory agencies
2.
Write any one advantage of accounting.
ANS: - Provide information in systematic order
6
3.
UNIT- 02
THEORY BASE OF ACCOUNTING
Unit at a glance:
Introduction
Meaning of accounting principles
Features of accounting principles
Necessity of accounting principles
Basic accounting concepts
Basis of accounting
Nature of accounting standards
Utility of accounting standards
Accounting principles are the rules of action or conduct adopted by accountants universally while
recording accounting transactions.
GAAP refers to the rules or guidelines adopted for recording and reporting of business transactions,
in order to bring uniformity in the preparation and presentation of financial statements.
Features of accounting principles:
(1) Accounting principles are manmade.
(2) Accounting principles are flexible in nature
(3) Accounting principles are generally accepted.
Necessity of accounting principles:
Accounting information is meaningful and useful for users if the accounting records and financial
statements are prepared following generally accepted accounting information in standard forms
which are understood.
An asset may be defined as a bundle of services. For example, a machine purchased for Rs.
2,00,000 and its estimated useful life say 10 years. The cost of machinery is spread on
suitable basis over next 10 years for ascertaining the profit or loss for each year. The total cost
of the machine is not treated as an expense in the year of purchase itself.
(4) Accounting period concept
Accounting period refers to span of time at the end of which financial statements are prepared
to know the profits or loss and financial position of business. Information is required to by
different users at regular intervals for decision making. For example, bankers require
information periodically because they want to ensure safety and returns of their investments.
Similarly management requires information at regular interval to assess the performance and
funds requirement. Therefore they are prepared at regular interval, normally a period of one
year. This interval of time is called accounting period.
According to this principle revenue is considered to have been realised when a transaction has
been entered and obligation to receive the amount has been established. In other words when
we receive right to receive revenue than it is called revenue is realised. For example, sales
made in March, 2010 and receives amount in April, 2010. Revenue of these sales should be
recognised in February month, when the goods sold. For example commission for the March,
9
2010 even if received in April 2010 will be taken into profit and loss A/c of March, 2010.
Similarly if rent for the April, 2010 is received in advance in March, 2010 it will be taken the
profit and loss A/c of the financial year of March, 2011.
(8) Matching concept
The matching concept states that expense incurred in an accounting period should be matched
with revenues during that period. It follows from this that revenue and expenses incurred to
earn these revenues must belong to the same accounting period.
For example, salary for the month of March, 2010 paid in April, 2010 is recorded in the profit
and loss A/c of financial year ending March, 2010 and not in the year when it realized.
Similarly we records cost of goods sold and not the goods purchased or produced. So the cost
of unsold goods should be deducted from the cost of goods produced or purchased.
(9) Full disclosure concept
Apart from legal requirement good accounting practice require all material and significant
information must be disclosed. Financial statements are the basic means of communicating
financial information to its users for taking useful financial decisions. This concept states that
all material and relevant fact and financial performance must be fully disclosed in financial
statement of the business. Companys act 1956 has provided a format for making profit and
loss A/c and balance sheet, which needs to be compulsorily adhered to for preparation of
financial statement. Disclosure of material information results in better understanding. For
example, the reasons for low turnover should be disclosed.
(10)Consistency concept
This concept states that accounting practices followed by an enterprise should be uniform and
consistent over a period of time. For example if an enterprise has adopted straight line method
of charging depreciation then it has to be followed year after year. If we adopt written down
value method from second year for charging depreciation than the financial information will
not be comparable. Consistency eliminates the personal bias helps in achieving the results that
are comparable. However consistency does not prohibits the change accounting policies.
Necessary changes can be adopted and should be disclosed.
(11) Conservatism concept (Prudence concept)
This concept takes into consideration all prospective losses but not the prospective profit. It
means profit should not be recorded until it realised but all losses, even those which have
remote possibility are to be recorded in the books. For example, valuing closing stock at cost
or market value whichever is lower, creating provision for doubtful debts etc. This concept
ensures that the financial statements provide the real picture of the enterprise.
(12) Materiality concept
This concept states that accounting should focus on material fact. Whether the item is material
or not shall depend upon nature and amount involved in it. For example, amount spent of
10
repair of building Rs. 4,00,000 is material for enterprise having the sales turnover of
Rs.1,50,000 but not material for enterprise having turnover of Rs. 25,00,000. Similarly
closure of one plant material but stock eraser and pencils are not shown at the asset side but
treated as expenses of that period, whether consumed or not because the amount involved in it
are low.
(13) Objectivity concept
This concept states that accounting should be free from personal bias. This can be possible
when every transaction is supported by verifiable documents. For example, purchase of
machinery for Rs. 30,000 should be supported by the voucher and should be recorded in the
books of accounts. Similarly other supporting documents are cash memo, invoices, receipts
provides the basis for accounting and auditing.
Basis of Accounting:
(1) Cash basis
Under this entries in the books of accounts are made when cash id received or paid and not
when the receipt or payment becomes due. For example, if salary Rs. 7,000 of January 2010
paid in February 2010 it would be recorded in the books of accounts only in February, 2010.
(2) Accrual basis
Under this however, revenues and costs are recognized in the period in which they occur
rather when they are paid. It means it record the effect of transaction is taken into book in the
when they are earned rather than in the period in which cash is actually received or paid by
the enterprise. It is more appropriate basis for calculation of profits as expenses are matched
against revenue earned in the relation thereto. For example, raw materials consumed are
matched against the cost of goods sold for the accounting period.
Accounting Standards (AS):
A mode of conduct imposed on an accountant by custom, law and a professional body.
By Kohler
Nature of accounting standards:
(1) Accounting standards are guidelines which provide the framework credible financial
statement can be produced.
(2) According to change in business environment accounting standards are being changed or
revised from time to time
(3) To bring uniformity in accounting practices and to ensure consistency and comparability is
the main objective of accounting standards.
(4) Where the alternative accounting practice is available, an enterprise is free to adopt. So
accounting standards are flexible.
(5) Accounting standards are amendatory in nature.
Utility of accounting standards:
11
(1)
(2)
(3)
(4)
They provide the norms on the basis of which financial statements should be prepared.
It creates the confidence among the users of accounting information because they are reliable.
It helps accountants to follow the uniform accounting practices and helps auditors in auditing.
It ensures the uniformity in preparation and presentation of financial statements by following
the uniform practices.
12
QUESTIONS
Explain cost concept.
(1) What is mean by accounting standard? What is the main objective of accounting standard?
(2) Explain the following concepts.
a. Business entity concept
b. Going concern concept
c. Revenue recognition concept
(3) Explain the utility of Accounting Standards.
(4) Which principle assumes that a business enterprise will not be liquidated in near future?
Ans. Going concern concept.
(5) Closing stock is valued lower than the market price which concept of accounting is applied
here?
Ans. Conservatism (prudence) concept.
(6) An asset may defined as a bundle of services explain with an example.
(7) Under which accounting principle, quality of manpower is not recommended in the books of
accounts?
Ans. Money measurement concept.
***********
UNIT-03
13
RECORDING OF TRANSACTION
Unit at a Glance :
Meaning of accounting equation
Classification of transactions
Rules of debit and credit
Meaning of Source documents
Meaning of voucher
Meaning of journal
Meaning and types of cash book
Purchase journal
Sales journal
Purchase return journal
Sales return journal
Questions
Accounting Equation :
Total Assets = Total Liabilities
Or
Total Assets = Internal Liabilities + External Liabilities
Or
Total Assets = Capital + Liabilities
Classification of Transactions
Following are the nine basic transactions:
1. Increase in assets with corresponding increase in capital.
2. Increase in assets with corresponding increase in liabilities.
3. Decrease in assets with corresponding decrease in capital.
4. Decrease in assets with corresponding decrease in liabilities.
5. Increase and decrease in assets.
6. Increase and decrease in liabilities
7. Increase and decrease in capital
8. Increase in liabilities and decrease in capital
9. Increase in capital and decrease in liabilities.
Illustration :
Show the effect of the following business transactions on assets, liabilities and capital through
accounting equations:
1. Commenced business with cash
20,000
2. Goods purchased on credit
7,000
3. Furniture purchased
3,000
4. paid to creditors
2,000
5. Amount withdrawn by the proprietor
4,000
6. Creditors accepted a bill for payment
1,500
7. interest on capital
1,000
8. Transfer from capital to loan
5,000
9. Allotted shares to creditors
1,000
Solution
14
Transactions
1.
Commenced business
with cash Rs.20000
2.
Goods purchased on
credit Rs. 7,000/New Equation
3.
Furniture Purchased
New Equation
4.
Paid to creditors
New Equation
5.
Amount withdrawn
by proprietor
New Equation
6.
Creditors accepted a
bill
New Equation
7.
Interest on capital
New Equation
8.
Transfer from capital
to loan
New Equation
9.
Allotted shares to
creditors
New Equation
Cash +
20000 +
Stock+
0+
Assets
Furniture
0=
= Liabilities
= Creditors
+ B/P
0+
0+
+ Loan
0+
+ Capital
+ Capital
20,000
7,000 +
0=
7,000+
0+
0+
20,000+
(-) 3,000
17,000+
(-)
2,000+
15,000+
- 4000+
7,000+
0+
7,000+
0+
0=
3,000=
3,000=
0=
7,000+
0+
7,000+
(-) 2000+
0+
0+
0+
0+
0+
0+
0+
0+
20,000
0
20,000
0
7,000
0+
3,000=
0=
5,000+
0+
0+
0+
0+
0+
20,000
-4000
11,000+
0+
7,000
0+
3,000=
0=
5,000+
-1500+
0+
1500+
0+
0+
16,000
0
11000+
0+
11000+
0+
7000+
0+
7000+
0+
3000=
0=
3000=
0=
3500+
0+
3500+
0+
1500+
0+
1500+
0+
0+
0+
0+
5000+
16000
-1000
16000
-5000
11000+
0+
7000+
0+
3000=
0=
3500+
-1000+
1500+
0+
5000+
0+
11000
1000
11000+
7000+
3000=
2500+
1500+
5000+
12000
SOURCE DOCUMENTS
Meaning of Source documents:
Business transactions are recorded in the books of accounts on the basis of some written evidence
called source document.
Common Source documents are Cash Memo, Invoice or Bill, Receipts, Debit Note, Credit Note,
Cheque, Pay in slip
Meaning of Voucher:
Voucher is a source by which we record the transactions.
Meaning of Journal:
Journal is a book of prime entry in which transactions are copied in order of date from a
memorandum or waste book.
Illustration:
Journalise the following transactions in the books of Ravi:
16
1. Bought goods from Sonam Rs. 20,000 less trade discount 20% plus VAT @ 10%.
2. Sold goods costing Rs. 6,000 to Ram for Rs. 8,000 plus VAT @ 10%
3. Sold the balance goods for Rs. 16,000 and charged VAT @ 10% to Mohan against payment by
cheque which was banked on the same day.
4. Deposited the VAT into government account by cheque.
Solution:
Date Particulars
1
Purchases A/c
Dr.
VAT Paid A/c
Dr.
To Sonam
(Goods purchased from Sonam )
Ram
Dr.
To Sales A/c
To VAT Collected A/c
(Goods sold & charged VAT @10%)
Bank A/c
Dr.
To Sales A/c
To VAT Collected A/c
(Goods sold to Mohan against cheque
& charged VAT @10%)
VAT Collected A/c
Dr.
To VAT paid A/c
(Adjustment of VAT paid with VAT
collected)
VAT Collected A/c
Dr.
To Bank A/c
(Balance amount of VAT deposited in
Govt.A/c
L.F.
Amount (Dr.)
Rs.
16,000
1,600
Amount Cr.
Rs.
17,600
8,800
8,000
800
17,600
16,000
1,600
1,600
1,600
800
800
CASH BOOK
Meaning: Cash book is a book in which all the transactions related to cash receipts and cash
payments are recorded.
2008
Feb.
1
Particulars
To Balance b/d
To Sales
To Sales
To Sales
V. No.
LF
Amount
(Rs.)
2,000
18,000
25,000
28,000
Date
Particulars
2008
Jan.
4
12
18
28
30
31
By Salaries
By Bank
By Transporter
By Electricity Bill
By Mr. Sharma
By Balance c/d
V.
No.
LF
73,000
To Balance b/d
Amount
(Rs.)
10,000
10,000
1,000
500
140
51360
73,000
51,360
Cash in hand
Goods sold for cash
Bought goods for cash
Paid Salary
Cash deposited into bank
Bought office furniture
Cash sales Rs. 20000 of which Rs. 12000 are banked on Oct.16
Bought goods from Sohan
Withdrew cash from bank for office use
Paid Sohan in full settlement of his account
Paid Amit by cheque
Paid carriage Rs. 500, rent Rs. 800 and life insurance premium Rs. 600.
Paid electricity charges Rs. 1,100 and insurance premium Rs. 800.
Rs.
13,000
9,500
6,700
3,000
5,500
4,000
5,800
2,500
18
5,600
2,000
5000
6000
3000
100
4000
200
2000
2500
4000
3000
2000
3000
1000
500
Solution
CASH BOOK (TWO COLUMN)
Date
2006
March
1
3
4
9
12
18
28
31
Apr.1
Particulars
To Balance b/d
To Naresh
To Cash
To Bank
To Harish
To Sales
To Bank Interest
To Cash
To Balance b/d
V.
No.
L.F.
Cash
5000
3000
C
C
Bank
6000
3000
2000
4000
9000
1000
2150
14000
500
21150
4150
Date
2006
March
4
6
7
9
10
13
14
16
25
27
29
31
31
Particulars
By Bank
By Naresh
By Ram
By Cash
By Drawings
By Shivam
By Furniture
By Purchases
By Commission
By Rent
By Bank charges
By Bank
By Balance c/d
V.
No.
L.F.
Cash
3000
Bank
3000
4000
2000
2500
C
4000
3000
1350
2000
3000
500
C
2150
500
4150
14000
21150
19
Particulars
Started Business with cash Rs. 1,00,000
Opened a bank current account with SBI Rs. 60,000
Bought goods from Ashok Rs. 15,000
Paid Ashok by cheque Rs. 14,700 and received discount Rs. 300
Sold goods to Mohan for cash Rs. 10,000 and on credit Rs. 22,000.
Received cheque from Mohan 21,400 and allowed discount Rs. 600.
Cheque of Mohan deposited into bank
Paid electricity charges Rs. 1100 and rent Rs. 2,000.
Received a cheque from Total for Rs. 6,800 in full settlement of his
account Rs. 7,000
Endorsed the cheque of Gopal in favour of our creditor Amar
Withdrew cash from bank for office use Rs. 5,000 and for personal use
3,500
Bought a machine from Raman. He was paid by cheque 9,000.
Paid Carriage of machine Rs. 300 and installation charges Rs. 700
Bank allowed interest Rs. 800 and bank charges were Rs. 200.
20
Particulars
Rs.
200
120
1000
600
80
Solution:
Amount
Received
4000
Cash
Date
Book Folio
2012
April 1
April 2
April 4
April 5
April 6
April 7
Particulars
To Cash A/c
By Postage A/c
By Travelling Exp. A/c
By Stationery A/c
By Office Expenses A/c
By Miscellaneous Exp. A/c
By Balance c/d
4000
Voucher
No.
Amount
Paid
200
120
1000
600
80
2000
4000
Illustration: Prepare an Analytical Petty Cash Book on the Imprest System from the following:
Jan.2012
1
2
2
3
3
4
4
5
5
5
6
6
Rs.
Received Rs. 1,000 for Petty Cash
Paid bus fare
Paid cartage
Paid for postage and telegrams
Paid wages for casual labourers
Paid for stationery
Paid auto charges
Paid for repairs to chairs
Bus fare
Cartage
Postage and telegrams
Conveyance charges
5
25
50
60
40
20
150
10
40
70
30
21
6
6
6
Cartage
Stationery
Refreshment to customers
30
20
50
Solution:
In the Books of_______________
Sundries
Wages
Postage and
Telegrams
1000
400 Jan 8
By Balance c/d
Stationery
Jan 6
Cartage
6
6
6
6
6
5
25
50
60
40
20
150
10
40
70
30
30
20
50
600
400
1000
Conveyance
To Cash A/c
To Conveyance A/c
By Cartage A/c
By Postage and Telegrams A/c
By Wages A/c
By Stationery A/c
By Conveyance A/c
By Repairs of Furniture A/c
By Conveyance A/c
By Cartage A/c
By Postage and Telegrams A/c
By Conveyance A/c
By Cartage A/c
By Stationery A/c
By General Exp. A/c
Total Payment
1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Particulars
Voucher No.
Date
Receipts
Jan 12
1000 1
2
5
25
50
60
40
20
150
10
40
70
30
30
20
65
95
60
120
60
50
200
To Balance b/d
To Cash A/c
PETTY CASH BOOK
Particulars
Bought from Bharat Electric Co. Dwarka Delhi on credit (Invoice No. 1238))
100 Tube light @ Rs. 40 each
50 Table fans @ Rs. 415 each
30 Electric Iron -Bajaj @ Rs. 200 each
Trade Discount 10%
Jan 9 Purchased from Ashoka Traders, Karol Bag, New Delhi on credit (Invoice
No. 551)
30 Table fans Polar @ 600 each
20 Mix grinders Usha @ Rs.500 each
Trade Discount 15%
Jan 16 Bought goods from Royal Electric Co. Kashmiri Gate, Delhi on credit
(Invoice No. 252)
20 Duson Bulbs @ Rs.100 per dozen
10 Table fans @ Rs. 500 each
Less : Trade Discount 15%
Jan 22 Bought from Prakash Lamps, Delhi for cash (Memo No. 715)
10 Table fans Orient @ Rs. 600 each
Jan.29 Bought from Laxmi Furniture, Rohtak on credit (Invoice No. 4312)
2 Tables @ 2000 each
10 Chairs @ Rs. 400 each.
Solution :
Date
2010
Jan 3
Jan 9
1238
Detail
Amount
Rs.
4,000
20,750
6,000
30,750
3,075
27.675
18,000
10,000
28,000
4,200
23,800
581
23
Jan 16
252
Jan 31
Purchases A/c
Dr
2,000
5,000
7,000
1,050
5,950
57,425
Sales Book
Meaning of Sales Book:
Sales Book or Sales Journal is a book in which all the credit sales of goods are recorded. Recording
in Sales book is done on the basis of invoice issued to the customers.
Illustration:
Enter the following transactions in the Sales book of M/s Salim & Co. Hyderabad
2012
May 4 Sold to Gupta Bros. New Delhi (Invoice No. 175)
10 dozen Pencils @ Rs. 20 per dozen
14 gross Rubbers Rs. 5 per dozen
May 14 Sold to M/s Fazal Mirza & Co. Mumbai (Invoice No.200)
5 Dozen Gum Bottle @ Rs. 5 per bottle
70 dozens Rulers @ Rs. 15 per dozen
Less : 10% Trade Discount
24
May 17 Sold old Newspapers for Rs. 200 (Invoice No. 215)
May 21 Sold to M/s Rajendra & Co. Ghaziabad (Invoice No. 255)
10 reams of Papers @ Rs. 60 per ream
Less : Trade Discount @ 10%
May 25 Sold to M/s Dhyanchand & Co. Delhi for cash (Invoice No. 285)
10 dozen pens @ Rs. 120 per dozen for cash
May 30 Sold to Cheap Stores, New Delhi (Invoice No. 299)
10 dozens Pencils @ Rs. 18 per dozen
Less: Trade Discount @ 10%.
May 31 Sold old furniture to M/s Kashyapel Co. on credit for Rs. 1700 (Invoice No.300)
Solution:
Sales Book (Sales Journal)
Date
Invoice
No.
LF
Amount
Details (Rs.)
2012
May 4
May 14
May 21
May 30
175
200
255
299
Total (Rs.)
200
840
1040
300
1050
1350
135
1215
600
60
540
180
18
162
Cr.
2,957
Solution :
Date
2004
March
11
March
20
March
31
26
90,000
152
20,000
Dr.
1,10,000
2.
3.
4.
5.
6.
7.
A=
C
+
L
3,14,600=
3,02,500+
12,100
Show the effect of the following business transactions on assets, liabilities and capital with
the help of accounting equation:
1. Commenced business with cash
31,200
2. Interest on Capital
1,560
3. Machinery Purchased
4,680
4. Cash withdrawn from the business for personal use of proprietor
6,240
5. Goods purchased on credit
3,120
6. Paid to creditors
2,340
7. Creditors accepted a bill for
1,560
8. Allotted shares to creditors
1,560
9. Transfer from capital to loan
7,800
Ans. Total after final equation 32,760
A
=
C+
L
32,760
= 18720
+ 14040
Prepare Accounting Equation for the following :
Started Business with
Cash
3,00,000
Building
90,000
Stock
60,000
Interest on capital
45,000
Depreciation charged on building
9,000
Money withdrawn from business for personal use
45,000
Goods withdrawn for personal use
22,500
Interest on drawings
2,250
Ans. Total after final equation 3,73,500
A
=
C+
L
3,73,500
= 3,73,500 +
0
Write Rules of Debit and Credit.
What is a Voucher ?
Define Journal ?
Enter the following transactions in the journal of Mohan:
2010
Rs.
Jan 1
Started business with cash
80,000
And goods
40,000
Jan.3
Paid into bank for opening a bank current account.
50,000
Jan 6
Bought goods from Ram and paid by cheque
10,000
Jan 9
Sold goods to Amar and received cheque
12,000
Jan 11 Cheque received from Amar deposited in the bank.
Jan 15 Withdrew cash by cheque for personal use
3,000
Jan 17 Took a bank loan
40,000
Jan 19 Paid Salary Rs. 2,000 rent Rs. 1,000 by cheque
Jan 21 Interest allowed by bank.
300
Jan.25 Ram who owed us Rs. 1,000 met with an accident and nothing could be
recovered.
28
8.
Rs.
20,000
15,000
6,000
45,000
5,000
200
28,000
3,000
4,000
550
8,000
3,000
2,000
1,500
Ans. 81,880.
Rs.
15,000
7,000
10,000
20,000
5,000
29
18
20
23
25
27
30
31
31
30,000
2,000
4,000
500
200
4,000
2,000
6,000
Ans. 51,290.
12. Record the following transactions in a Cash Book with Cash and Bank Columns:
Jan 03
1
2
5
15
16
17
25
27
28
30
Rs.
Cash in hand
3,151.20
Cash at Bank
91,401.10
Discounted a Bill Receivable (B/R) for Rs. 1,000 at
1% through bank
Bought goods for RS. 2,000 and paid by cheque,
discount allowed 1%
Paid trade expenses
120.00
Paid taxes
400.00
Paid insurance charges
100.00
Sold goods for Rs. 12,500, received cheque and
allowed discount 1%
Cheque received on 25th deposited into bank
Received cheque from John & Co.
Purchased 100 NSC Plan Certificate for Rs. 100 each
6,000.00
@ 95 each and paid for them by cheque
Ans. Cash = 12,995, Bank 700
13. From the following information prepare Two Column Cash Book
July 2007
1 Bank Balance
1 Cash Balance
3 Purchased goods by cheque
6 Goods sold for cash
9 Machinery purchased by cheque
12 Cash sales immediately deposited into bank
14 Purchased goods from Vaidya for cash
16 Purchased stationery by cheque
20 Cheque given to Ratnesh
22 Cash withdrawn from bank
24 Salary paid by cheque
26 Cash deposited in bank
Rs.
50,000
20,000
10,000
7,000
6,000
8,000
5,500
5,000
2,000
8,000
2,000
96,000
30
3,000
4,000
5,600
Ans Cash 22,100 Bank 31,000
From the following particulars of Baljinder Flour Mills prepare a Sales Book :
2005
Mar. 3 Sold to Gupta Brothers
90 Bags of Sugar @ Rs. 85 per bag
20 Quintals Rice @ Rs. 300 per quintal
Less : 10% Trade Discount
Mar.6 Sold to Jugal Furniture House
80 Chairs of Rs. 10 each
31
From the following information of M/s Gajadhar and Sons prepare a Sales Book
2007
July 3 Sold to Mohan vide invoice No. 325, 40 kg. Assam
Tea @ 66 per kg less trade discount of 5%. VAT @
10%. Freight and Packing charges were separately
charged in the invoice at Rs. 352.
July 8 Sold to Ramanand vide (Invoice No. 426), 5 chests of
tea for Rs. 3960 less trade discount @ 10% and VAT is
charged @ 10%.
July 20 Sold to Krishna & Sons vide Cash Memo No. 845, 80
`
kg butter @ Rs. 200 per kg; less trade discount @ 25%
and VAT @ 8%.
July 26 Sold to Shivhare vide invoice No. 189, 30 packets of
Darjeeling Tea @ Rs. 110 per packet less trade
discount Rs. 220, charged VAT @ 10%.
Ans. Total of Sales Book Rs. 10,419.
18.
Enter the following transactions in the Purchases Return Book of Sh. Mukund.
2007
Jan.20 Returned goods to Arav & Sons for Rs. 410,000
Trade Discount 10% (Debit Note No.369).
Jan.24 Allowance Claimed from Rakesh on account of mistake in the invoice
Rs. 900 (Debut Note No. 2660)
Jan.29 Returned goods to Sweksha Ltd. For Rs. 26,000 as the goods were
defective (Debit Note No.3100).
(Ans.Total of Purchase Return Book = Rs. 35,900)
Prepare purchase return book of Madhav Rao Furniture House
2011
Feb.1 Returned to Chanakya Co. (Debit Note No. 123)
5 Chairs @ Rs. 80 per chair
10 stools @ RS. 150 per stool
Feb.10 Returned to Goyanka Furniture Stores (Debit Note No. 178)
5 Elmira @ Rs. 100 per Elmira
8 Tables @ Rs. 70 per table
Feb.28 Returned to Ashok & Co. : (Debit Note No.199)
7 Stools @ Rs. 120 per stool
19.
32
20.
**********
UNIT 4
PREPARATION OF LEDGER, TRIAL BALANCE AND
BANK RECONCILIATION STATEMENT
Unit at a Glance:
Introduction
Meaning and Importance of Ledger.
Format of Ledger.
Postings from Journal.
Postings from Cash Book and other Subsidiary Books.
Closing and Balancing of Ledger Accounts.
Trial Balance - Meaning, objectives and Preparation.
Meaning and importance of Suspense A/c.
Bank Reconciliation Statement
Generally students commits mistakes please avoid it
Questions
Ledger is a book which contains all accounts of the business enterprise whether Personal, Real or
Nominal.
33
INTRODUCTION
After recording the business transaction in the Journal or special purpose Subsidiary Books, the next
step is to transfer the entries to the respective accounts in the Ledger. Ledger is a book where all the
transactions related to a particular account are collected at one place.
LEDGER
Definition: The Ledger is the main or principal book of accounts in which all the business
transactions would ultimately find their place under various accounts in a duly classified form.
According to L.C. Cropper, The book which contains a classified and permanent record
of all the transactions of a business is called the ledger.
Points to be Remember: To know the collective effect of all the transactions pertaining to
one particular account.
By this classification / collective effect we are able to know the following
How much amount is due from each customer and how much amount the firm has to pay to
each supplier/ creditor.
The amount of Purchases and Sales during a particular period.
Amount paid or received on account of various items.
Ultimate position of Assets and Capital.
For the preparation of Trial Balance which helps in ascertaining the Arithmetic Accuracy of
the Accounts.
Points to be Remember: Ledger is also called the Principal Book of Accounts
PERFORMA OF LEDGER
Name of the Account
Dr.
Date
Particulars
J.F
Amount Date
Particulars
J.F
Cr.
Amount
If an account is debited in the journal entry, the posting in the ledger should be made on the
debit side of that particular account. In the particular column the name of the other account
(which has been credited in the Journal entry) should be written for reference.
For the A/c credited in the Journal entry, the posting in the ledger should be made on the
credit side of that particular A/c. In the particulars column, the name of the other account that
has been debited (in the Journal entry) is written for reference.
Points to be Remember: To is written before the A/c s which appear on the debit side of ledger.
By is written before the A/c s appearing on the credit side.
Use of these words To and By is optional.
--
2,000
J.F
Rs.
Date
J.F
Cr
Rs.
Particulars J.F
By Cash A/c
Rs.
2,000
Particulars
2,000
Particulars
J.F
Rs.
Date
Aug.1
To Ram
(Cash received and
discount allowed)
15,000
Ledger A/c
Cash A/c
Dr
Date Particulars
2011
Aug.8 To Ram
L.F
Rs.
Date
Particulars
L.F
Cr
Rs.
L.F
Cr
Rs.
14,500
Discount Allowed A/c
Dr
Date Particulars
2011
Aug.8 To Ram
L.F
Rs.
Date
Particulars
500
Rams Account
Dr
Date
Particulars
L.F
Rs.
Cr
Rs.
Date
Particulars L.F
2011
Aug. 8 By cash A/c
14,500
By Discount
500
Allowed A/c
Case II. - Ledger Postings from Cash Book
Important Points
(1) Cash Book itself serves as a cash A/c also, therefore when cash book is maintained, cash A/c
is not opened in the ledger.
(2) When Bank column is maintained in the Cash Book, Bank A/c is also not opened in the ledger.
The Bank column itself serves the purpose of Bank A/c.
(3) Opening and closing balances of Cash Book will not be entered in the ledger anywhere.
(4) As Cash Book serves the purpose of Cash/Bank A/c, it means that, only the second A/c (other
than Cash A/c or Bank A/c) is to be opened in the ledger and posting is to be made for each
entry in the Cash Book.
Rules of Posting
(a) Posting from the Debit Side of Cash Book
Entries appearing on the debit side of Cash Book are to be posted to the Credit Side of respective
accounts in the Ledger by writing the words
By Cash A/c
if it is from the Cash Column
36
By Bank A/c
if it is from the Bank column.
(b) Posting from the Credit Side of Cash Book
Entries appearing on the credit side of the Cash Book are to be posted to the Debit side of respective
accounts in the ledger by writing the words.
To Cash A/c
if it is from the Cash Column
By Bank A/c
if it is from the Bank Column
(c) All contra entries marked C are ignored while posting from the Cash Book to the
Ledger because double aspect of such transactions is completed in the Cash Book itself.
Illusration: Given some Cash Book entries post there into ledger A/c
Date
Particulars
2011
Jan 10 To Capital
A/c
Jan 15 To Cash A/c
Jan 22 To Sales A/c
Jan, 28 To Anil
Vr. L.F.
Cash
`
Bank Date
`
20,000
C
Jan,12
Particulars
Vr. L.F.
By Purchases A/c
Cash
`
Bank
`
5,000
C
10,000
- 4,500
8,000 8,400
23,000 12,900
SOLUTION:
15th Jan. entry will not be posted (Contra Entry)
Closing Balance will not be posted in the ledger
Capital A/c
Dr
Date Particulars
Dr
Date Particulars
L.F Amount
Rs.
Date
2011
Jan. 10
Sales A/c
L.F
Rs.
Date
2011
Jan. 22
Particulars
Cr
L.F Amount
Rs.
By Cash A/c
Particulars
20,000
L.F
By Cash A/c
Cr
Rs.
3,000
Anils A/c
Dr
Date Particulars
Cr
L.F
Rs.
Date
2011
Jan. 28
Particulars
By Bank A/c
L.F
Rs.
2,900
37
Purchases A/c
Dr
Date
Cr
Particulars
L.F
2011
Jan. 12 To Cash A/c
Rs.
Date
Particulars
L.F
Rs.
5,000
Sumits A/c
Dr
Date
2011
Cr
Particulars
L.F
Rs.
Date
Particulars
L.F
Rs.
4,500
Purchases Book
Name of the Supplier
Inv. No. L.F. Details
(Rs)
Sahil & Co.
Geeta Industries
Less Trade Discount 20%
Vijay & Co.
Less 20% Trade Discount
Purchases A/c
Dr
Total Amount
(Rs)
10,000
20,000
(4,000)
12,000
(2,400)
16,000
9,600
35,600
Cr
38
Date
Particulars
L.F
2011
June30 To Sundries as
per Purchases
Book
Amount
Rs.
Particulars
L.F
Amount
Rs.
Date
Particulars
L.F
2011
June 4 By Purchases
A/c
Geeta Industries
Particulars
L.F
Amount
Rs.
Date Particulars
L.F
2011
June 14 By Purchases
A/c
Dr
Date
L.F
Dr
Date
Particulars
Particulars
Amount
Rs.
35,600
Dr
Date
Date
L.F
Amount
Rs.
Date Particulars
L.F
2011
June26 By Purchases
A/c
Cr
Amount
Rs.
10,000
Cr
Amount
Rs.
16,000
Cr
Amount
Rs.
9,600
(5) If the Debit side exceeds the Credit Side the difference is a Debit Balance whereas.
(6) If the Credit side exceeds the Debit side the difference is a Credit Balance.
GENERALLY STUDENTS COMMITS MISTAKES PLEASE AVOID :-
1. Debit Balance of a Personal A/c means the person is a Debtor of the firm whereas Credit
Balance of a Personal A/c indicates that the person is a Creditor of the firm.
2. Real A/c s (which include Cash and all other Assets A/c s) will usually show Debit
Balances.
3. Nominal A/C s (A/c s of Income and Expenses) are transferred to Trading and Profit and Loss
A/c of the firm at the end of the Accounting Period.
4. Debit Balance of any A/c means an Asset or an Expense whereas Credit Balance means
a liability, Capital or Income earned.
TRIAL BALANCE
I Meaning When posting of all the transactions into the Ledger is completed and accounts are
balanced off, then the balance of each account is put on a list called Trial Balance.
II Definition Trial Balance is the list of debit and credit balances taken out from ledger. It also
includes the balances of Cash and bank taken from the Cash Book.
III Preparation Steps (Only Balance Method)
(1) Ledger A/Cs which shows a debit balance is put on the Debit side of the trial balance.
(2) The A/cs Showing credit balance are put on the Credit side of the Trial Balance.
(3) Accounts which show no balance i.e. whose Debit and Credit totals are equal are not
entered in Trial Balance.
(4) Then the two sides of the Trial Balance are totaled. If they are equal it is assumed that there are no
16,000.
June 2 Purchased from Ramesh and Sons goods of the list price of Rs. 20,000 at 10% trade
discount.
June 5 Returned to Ramesh & Sons goods of the list price of Rs. 2,000.
June 10 Issued a cheque to Ramesh and Sons in full settlement of their account.
June 12 Sold to Amit and Co., goods worth Rs. 25,000.
June 15 Received cash Rs. 10,000 and a cheque for Rs. 8,000 from Amit and Co. The cheque
was immediately deposited into the bank.
June 16 Withdrawn for personal use cash Rs. 5,000 and goods of Rs. 3,000.
June 17 Accepted a bill for 45 days drawn by Virat and Co. for the amount due to him.
June 18 Acceptance received from Sumit Bros. for the amount due from them payable after
30 days.
June 19 Sold to Mohit Bros., goods for Rs. 16,000.
June 20 Cash purchases Rs. 15,000.
June 22 Withdrawn from bank for office use Rs. 10,000.
June 23 Purchased from Vishal goods valued at Rs. 24,000.
June 24 Amit and Co. returned goods worth Rs. 2,000.
June 25 Received from Mohit Bros. Rs. 10,000.
June 27 Accepted a bill for Rs. 25,000 for 1 month draw by Vishal.
June 27. Paid by cheque, Rent Rs. 2,800
June 27 Received Commission in Cash Rs. 800
June 30 Paid salaries Rs. 5,000.
SOLUTION:
Cash Book (with cash and Bank Columns)
Date
June
2011
1
15
22
25
27
30
Receipt
Total
July To Balance b/d
1
L.F.
Cash
Rs.
Bank
Rs.
20000
10000
10000
10000
800
--
-8000
---54000
50800
25800
62000
Date
June
2011
1
10
16
20
22
27
30
30
Payments
L.F
Cash
Rs.
Bank
Rs.
--5000
15000
--5000
25800
50800
--
33000
16200
--10000
2800
--62000
54000
Notes :
1. Extras marked with will* not be posted anywhere in the ledger.
2. Closing Balances of Cash and Bank will be shown in the Trial Balance.
3. All other A/cs shown in the Debit side will be credited & All other A/cs shown in the
42
Inv. No.
L.F
Details
Rs.
20,000
2,000
Total Amount
Rs.
18,000
24,000
42,000
Sales Book
Date
In. No.
L.F
Details
Rs.
2011
June 12
Amit & Co.
June 19
Mohit Bros.
June 30 Sales A/c
Cr
Total Amount
(Rs.
25,000
16,000
41,000
Credit
Note No.
L.F
Details
Rs.
Total Amount
Rs.
2,000
2,000
Debit
Note No.
2011
June 5 Ramesh & Sons.
Less Trade Discount 10%
June30 Purchases Return A/c Cr
L.F
Details
Rs.
2,000
200
Total Amount
Rs.
1,800
1,800
June 30
Period of
the bill
30 days
July 21
30,000
30,000
To Whom Given
Period of
the Bill
45 days
1 month
August 4
July 30
A/c
Cr
24,000
25,000
49,000
Important: Besides opening Journal entries, any transaction which is not covered under any of
the Subsidiary Book is done in Journal proper.
Journal Proper
Date
Particulars
L.F
Amount
Amount
Dr.
Cr.
2011
Rs.
Rs.
June 1
Cash A/c
Dr
20,000
Amit & Co.
Dr
15,000
Sumit Brothers
Dr
30,000
Stock A/c
Dr
1,75,000
Machinery A/c
Dr
1,20,000
Furniture A/c
Dr
40,000
To Bank (Overdraft) A/c
33,000
44
Drawings A/c
To Purchases A/c
Dr
24,000
16,000
3,27,000
3,000
3,000
Cr.
Particulars
J.F Amount
Date
Particulars
J.F
(Rs)
2011
mount
(Rs)
2011
June 1
To Balance b/d
15,000
June 15
By Cash A/c
10,000
June 12
To Sales A/c
25,000
June 15
By Bank A/c
8,000
June 24
By Sale Reurn
2,000
June 30
A/c
By Balance c/d
20,000
40,000
40,000
July 1
To Balance b/d*
20,000
Cr.
Particular
J.F Amount
(Rs)
2011
June 1 To Balance b/d*
30,000
Date
Particular
2011
June18
By B/R. A/c
J.F
Amount
(Rs)
30,000
Stock Account
Dr.
Date
Cr.
Particular
J.F Amount
(Rs)
2011
June 1 To Balance b/d*
Date
Particular
J.F Amount
(Rs)
2011
1,75,000
Machinery A/c
45
Dr.
Date
Cr.
Particular
J.F
2011
June 1 To Balance b/d
Amount Date
(Rs)
2011
Particular
1,20,000 June 30
By Balance
c/d
J.F
1,20,000
1,20,000
1,20,000
1,20,000
Amount
(Rs)
Furniture A/c
Dr.
Date
Cr.
Particular
J.F
2011
June 1 To Balance b/d
July 1 To Balance b/d
Amount Date
Particular
J.F
(Rs)
2011
40,000 June 30 By Balance c/d
40,000
Amount
(Rs)
40,000
Cr.
Particular
J.F
2011
June 17 To Bills Payable
A/c
Amount Date
(Rs)
2011
June 1
24,000
Particular
J.F
Amount
(Rs)
By Balance
b/d
24,000
Cr.
Particular
J.F
2011
June 27 To Bills Payable
A/c
June 30 To Balance c/d
Amount Date
Particular
J.F Amount
(Rs)
(Rs)
2011
June 1 By Balance b/d
16,000
25,000
15,000 June 23 By Purchases
A/c
24,000
40,000
40,000
July 1 By Balance b/d*
15,000
Capital A/c
Dr.
Date
Cr.
Particular
J.F Amount
(Rs)
Date
Particular
J.F Amount
(Rs)
46
2011
June 30
2011
3,27,000 June 1
July 1
To Balance c/d
By Balance b/d
By Balance b/d
3,27,000
3,27,000
Drawings A/c
Dr.
Date
Cr.
Particular
2011
June 16 To Cash A/c
June 16 To Purchases A/c
July 1
J.F Amount
(Rs)
5,000
3,000
8,000
8,000
To Balance b/d*
Date
2011
June 30
Particular
J.F
By Balance c/d
Amount
(Rs)
8,000
8,000
Cr.
Particular
J.F Amount
Date
Particular
J.F
(Rs)
2011
June 5
To Parchase
Return A/c
June 10 To Bank A/c
1,800
2011
June 2
By Puchase
A/c
Amount
(Rs)
18,000
16,200
18,000
18,000
Purchases A/c
Dr.
Date
Cr.
Particular
J.F Amount
(Rs)
2011
June 20 To Cash A/c
June 30 To Sundries as per
Purchases Book
15,000 J
42,000
Date
Particular
J.F Amount
(Rs)
2011
June 16 By Drawings
A/c
June 30 By Balance c/d
3,000
54,000
57,000
57,000
54,000
Cr.
Particular
J.F
Amount
Date
Particular
J.F
Amount
47
(Rs)
2011
June 19 To Sales A/c
16,000
(Rs)
2011
June 25 By Cash A/c
June 30 By Balance c/d
10,000
6,000
16,000
16,000
July 1
To Balance b/d*
6,000
Rent A/c
Dr.
Date
Cr.
Particular
J.F Amount
Date
Particular
J.F
Amount
(Rs)
2011
(Rs)
2011
2,800
2,800
June 30
By Balance c/d
2,800
Commission A/c
Dr.
Date
Cr.
Particulars
J.F Amount
(Rs)
2011
Date
Particulars
J.F Amount
(Rs)
2011
June 27
By Cash A/c
800
Salaries A/c
Dr.
Date
Cr.
Particular
2011
June 30 To Cash A/c
J.F Amount
(Rs)
Date
Particular
J.F
Amount
(Rs)
2011
5,000
Sales A/c
Dr.
Date
Cr.
Particular
J.F Amount
(Rs)
Date
Particular
2011
June 30 By Sundries as
per Sales Book
J.F Amount
(Rs)
41,000
Date
Cr.
Particular
J.F Amount
Date
Particular
J.F Amount
48
(Rs)
2011
June 30 To Sundries as
per Sales Return
Book
(Rs)
2,000
Purchase Return A/c
Dr.
Date
Particular
Dr.
Date
June 30
July 1
Particular
To Sundries as
per B/R Book
To Balance b/d*
Dr.
Date
June 30
Cr.
J.F Amount
(Rs)
Amount Date
Particular
J.F
(Rs)
30,000 June 30 By Balance c/d
1,800
Cr.
Amount
(Rs)
30,000
30,000
J.F Amount
(Rs)
To Balance c/d
49,000
Cash A/c
Bank (overdraft) A/c
Amit & Co.
Stock A/c
Machinery A/c
Furniture A/c
Vishals A/c
Capital A/c
Drawings A/c
Date
Cr.
J.F Amount
(Rs)
June 30 By Sundries as
49,000
per B/P Book
July 1 By Balance b/d*
49,000
TRIAL BALANCE
as on 30th June, 2011
L.F
Particular
Debit
Credit
Balances Balances
(Rs)
(Rs)
25,800
54,000
20,000
1,75,000
1,20,000
40,000
15,000
3,27,000
8,000
49
Purchases A/c
Mohit Brothers
Rent A/c
Commission A/c
Salaries A/c
Sales A/c
Sales Return A/c
Purchase Return A/c
Bills Receivable A/c
Bills Payable A/c
54,000
6,000
2,800
5,000
2,000
30,000
Total
4,88,600
800
41,000
1,800
49,000
4,88,600
SUSPENSE ACCOUNT
When Trial Balance does not agree, then first of all we try to locate the errors. Sometimes, in
spite of the best efforts, all the errors are not located and the Trial Balance does not tally. Then in
order to avoid delay in the preparation of final accounts, a new account is opened which is
known Suspense Account Difference in Trial Balance is posted to this Account.
1. If there is Excess Debit in the Difference is posted to the Credit side
Trial Balance
of Suspense A/c
2. If there is Excess Credit in the Difference is posted to the Debit side
Trial Balance
of Suspense Account.
Illusration:
S.
Trial
no. Dr. Total
(Rs)
1. 2,25,000
2.
2,16,500
Balance
Difference Posted to the Suspense A/c ?
(Cr Total)
(Rs.)
(Debit / Credit Side)
(Rs)
(Rs)
2,16,500
8,500
Credit Side of Suspense A/c.
(Excess Debit)
2,25,000
8,500
Debit Side of Suspense A/c.
(Excess Credit)
Points to be Remember:(1) Debit Balance of Suspense Account is shown in the Asset Side of the B/Sheet.
(2) Credit Balance of Suspense Account is shown in the Liability
50
Introduction
Meaning of B.R.S.
Causes of Differences in Bank Balance as per Cash Book and Pass Book.
Importance of Bank Reconciliation Statement.
Procedure of preparation of B.R.S.
Preparation of Adjusted Cash Book.
INTRODUCTION
Usually all the firms open a current account with the bank as there are so many transactions and record these
transactions in the Bank column of the Cash Book. Bank also maintains a separate ledger account of each firm
(customer) and periodically supplies a copy of the account to the firm for information. This copy of the firms
Account supplied by the bank is known as Bank Statement or Bank Pass Book.
Since all the transactions with the bank are entered in both the books Cash Book and Pass Book,
the balances of the two books should tally with each other. But usually the two balances dont tally.
Bank Reconciliation Statement is prepared to reconcile the difference between the Bank Balance
shown by the Cash Book and Bank Pass Book.
DEFINITION
A schedule showing the items of difference between the bank statement and the bank column of
Cash Book is known as Bank Reconciliation Statement.
CAUSES OF DIFFERENCES IN CASH BOOK AND PASS BOOK
The differences may be caused by either
A. Time gap in recording transactions or
B. Errors Committed in recording transactions.
(A) Differences Caused by the time gap:Reasons for the time gap in recording the transactions in the two books (Cash Book and Pass
Book) are as given below
(1) Cheques issued but not yet presented for payment in the bank.
(2) Cheques deposited or paid into the bank for collection but not yet credited by the
bank.
(3) Cheques deposited but dishonoured by the bank.
(4) Interest allowed by the bank.
(5) Interest on overdraft, bank charges, commission etc. charged by the bank.
(8) Direct payments made by the bank on behalf of customer as per standing instruction.
Starting Point
Cash Book
Less Balance
More Balance
+ item
item
End Point
Pass Book
More Balance
Less Balance
Note : To get more from less means something is to be added therefore + item
& To get less from more, something is to be deducted therefore _ item.
1. First of all write
Under Plus Item If the Cash Book Balance is debit or favorable or simple balance.
Under Minus Item If the Credit Balance or overdraft as per Cash Book is given.
2. Now study the point of difference.
(a) If the entry is done in the Cash Book and not in the Pass Book then .
(i) if it is done on the debit side of Cash Book, Balance in the Cash Book will be
more as compared to Pass Book and hence the item will be() item as shown in the box
above.
(ii) where as if the entry is done on the Credit side of Cash Book, the Balance in the
Cash Book will be less as compared to Pass Book and hence the item will be (+) item.
(b) If the entry is done in the Pass Book and not in the Cash Book then.
(i) if done on the Credit side of Pass Book
Pass Book Balance is more as compared to Cash Book () item.
(ii) It it is done on the Debit side of Pass Book
Pass Book Balance is less as compared to Cash Book
() item
3. At the end + items and items are totaled.
(a)If total of Plus Items is more than the total of () items
Difference is Cr Balance or
favorable balance as per Pass Book.
(b)
Whereas if the items total is more than the (+) items total
Difference is Dr
Balance
or overdraft as per Pass Book.
Ready Reference
(+) Items (Items which increases the Pass Book Balances or decreases the Cash Book
Balance)
(1) Cheques issued but not yet presented.
(2) Credits made by the bank for Interest.
(3) Amount directly deposited by the customers in our bank A/c.
(4) Interest and dividend collected by the bank.
(5) Cheques paid into the bank but omitted to be recorded in the Cash Book.
() Items (Items which, decreases the Pass Book Balance or increase the Cash Book
Balance)
1. Cheques sent to the bank for collection but not yet credited by the bank.
2. Cheques paid into the bank but dishonoured.
3. Direct payments made by the bank.
4. Bank charges, commission etc. debited by the bank.
53
(2) Cheques for Rs. 15,000 were deposited into the Bank in the month of July but only cheques for Rs.
(3)
(4)
(5)
(6)
+ items
(Rs.)
items
(Rs.)
25,000
3,800
4,000
370
1,550
50
1,200
30,720
25,470
5,250
Explanation :
0 (1) Balance per Cash Book means favourable Balance, hence + item. If nothing b(i.e. Debit
(3) Cheque issued but not presented for payment till 31st July is for Rs. 3800 entered
54
+ item
(Rs.)
2,800
1,200
item
(Rs.)
10,500
2,000
50
250
1,500
55
Total
Overdraft as per Pass Book (14,300 4,000)
4,000
14,300
10,300
Balance]
1) Cheques sent for collection to the bank but not yet credited / collected by the bank.
Particulars
+ item
(Rs.)
item
(Rs.)
25,470
4,000
3,800
50
370
1,550
1,200
Total
30,720
5,720
Important Points
Starting and Ending Points are reversed as compared to Example No. 1, Hence + items and ()
items are interchanged.
Favourable balance whether of Cash Book or Pass Book is always a + item.
If + items total is more than the items total then the difference in the two totals is always a
favourable balance.
57
where as if + items total is less than the items total then the difference in the two totals is
overdraft.
Example:- 4 Overdraft as per Pass Book is given.
Given that (1) Overdraft as per Pass Book is Rs. 10,300 Rest of the contents (points 2 to 6) are
same as given in example No. 2
Prepare B.R. Statement for the month of June 2011.
SOLUTION
Bank Reconciliation Statement as on 30th June 2011
Particulars
+ item
(Rs.)
(1) Overdraft as per Pass Book
item
(Rs.)
10,300
2,800
1,200
14,300
10,500
Important Points
1. Overdraft whether as per Cash Book or Pass Book is always a () items.
2. Starting and Ending points are interchanged as compared to Example No. 2, hence + items and ()
are also interchanged.
3. Here () items total is more as compared to (+) items total, therefore the difference in the two
balance is a negative items i.e. overdraft as per Cash Book.
Amended Cash Book Method:Introduction : So far we have studied the preparation Bank Reconcilliation State-ment simply by
reconciling the causes of differences between the Cash Book and Pass Book. In actual practice
adjustments are done in the Cash Book by comparing the Bank column of Cash Book with the Bank
Statement and after that B.R. Statement is prepared. It is called Amended Cash Book Method.
Procedure
1) Adjusted Cash Book is prepared starting with the Balance of the Cash Book given in the
question.
2) All errors that have been committed in the Cash Book will have to be rectified by passing
adjusting entries in the Cash Book.
Usual or General Errors are
(a) Overcasting or Undercasting of Debit / Credit Column of Cash Book.
(b) Cheques deposited or Issued but omitted to be entered in the Cash Book.
58
(`)
3,560
1,600
Particulars
By Drawings
By Bank charges
By Balance c/d.
(`)
460
20
4,680
59
5,160
Particulars
5,160
+ item
(Rs.)
4,680
item
(Rs.)
600
1,000
850
5,680
4,230
1,450
Total
Balance as per Pass Book
(5680 1,450)
(Cr)
QUESTIONS
Q.(1) Give journal entries of M/s Krutagna traders, Post them to the Ledger from the following
transactions and prepare a Trial Balance :
60
April- 2012
Rs.
1. Commenced business with cash
1,10,000
2. Opened bank account with H.D.F.C.
50,000
3. Purchased furniture
20,000
7. Bought goods for cash from M/s Rupa Traders
30,000
8. Purchased good from M/s Hema Traders
42,000
10. Sold goods for cash
30,000
14. Sold goods on credit to M/s. Gupta Traders
12,000
16. Rent paid
4,000
18. Paid trade expenses
1,000
20. Received cash from Gupta Traders
12,000
22. Goods return to Hema Traders.
2,000
23. Cash paid to Hema Traders
40,000
25. Bought postage stamps
100
30. Paid salary to Rishabh
4,000
Q. (2) Journalise the following transactions in the Books of M/s Bhuj traders. Also post them in the
ledger and prepare a Trial Balance.
May- 2012
Rs.
1. Started business with cash
2,00,000
2. Bought office furniture
30,000
3. Paid into bank to open a current account
1,00,000
5. Purchased a computer and paid by cheque
2,50,000
6. Bought goods on credit from Ritika
60,000
8. Cash sales
30,000
9. Sold goods to Krishna on credit
25,000
12. Cash paid to Mansi on account
30,000
14. Goods returned to Ritika
2,000
15. Stationery purchased for cash
3,000
16. Paid wages
1,000
18. Goods returned by Krishna
2,000
20. Cheque given to Ritika
28,000
Bank Reconciliation Statement
Q.(1) The cash book shows a bank balance of Rs. 7,800. On comparing the cash book with
passbook the following discrepancies were noted :
(a) Cheque deposited in bank but not credited Rs. 3,000
(b) Cheque issued but not yet present for payment Rs. 1,500
(c) Insurance premium paid by the bank Rs. 2,000
(d) Bank interest credit by the bank Rs. 400
(e) Bank charges Rs. 100
(d) Directly deposited by a customer Rs. 4,000
(Ans: Balance as per passbook Rs. 8,600).
Q.(2) The passbook of Mr. Mohit current account showed a credit Balance of Rs. 20,000 on
dated December 31, 2005. Prepare a Bank Reconciliation Statement with the following
information.
(i) A cheque of Rs. 400 drawn on his saving account has been shown on current account.
61
(ii) He issued two cheques of Rs. 300 and Rs. 500 on of December 25, but only the first
cheque was presented for payment.
(iii) One cheque issued by Mr. Mohit of Rs. 500 on December 25, but it was not presented for
payment whereas it was recorded twice in the cash book.
(Ans: Balance as per cash book Rs. 18,900).
Q.(3) Prepare bank reconciliation statement.
(i) Overdraft shown as per cash book on December 31, 2005 Rs. 10,000.
(ii) Bank charges for the above period also debited in the passbook Rs. 100.
(iii) Interest on overdraft for six months ending December 31, 2005 Rs. 380 debited in
the passbook.
(iv) Cheques issued but not in cashed prior to December 31, 2005 amounted to Rs.
2,150.
(v) Interest on Investment collected by the bank and credited in the passbook Rs. 600.
(vi) Cheques paid into bank but not cleared before December, 31 2005 were Rs.1,100.
(Ans: overdraft as per passbook Rs. 8,830).
******************
UNIT-05
Causes of depreciation
Need or objectives of depreciation
Factors or basis for providing depreciation
Methods of calculating depreciation
Difference between straight line method and written down value method
Methods of recording depreciation
Sale of an asset
Disposal of an asset
Provisions and reserves
Types of reserves
Depreciation is gradual and permanent decrease in the value of an asset from any cause. Carter
Introduction:
Every fixed asset loses its value due to use or other reasons. This decline in the value of asset is
known as depreciation.
Meaning of Depreciation:
Depreciation may be described as a permanent, continuing and gradual shrinkage in the book value of fixed
assets.
Features of Depreciation:
(1) It is decline in the book value of fixed assets.
(2) It is a continuing process.
(3) It includes loss of value due to efflux ion of time, usage or obsolescence.
(4) It is an expired cost and must be deducted before calculating taxable profit.
Causes of Depreciation:
(1) Wear and tear due to use or passage of time.
(2) Obsolescence.
(3) Expiration of legal rights.
(4) Abnormal factors.
Need or Objectives of Depreciation:
(1) To ascertain the true profit or loss.
(2) For consideration of tax.
(3) To ascertain the true and fair financial position.
(4) Compliance with legal provisions.
Factors or Basis for providing Depreciation:
(1) Cost of asset.
(2) Estimated net residual value.
(3) Depreciable cost.
(4) Estimated useful life.
Methods of calculating Depreciation:
63
Depreciation =
Not recognised
Recognised
Easy to calculate
Difficult to calculate
Difference between Straight line method and written down value method:
Methods of recording Depreciation:
(1) When depreciation is charged to asset account:
In this method depreciation is deducted from the asset value and charged (debited) to profit
and loss account. Journal entries for recording under this method are as follows.
(a) For purchase of an asset
Asset A/c
Dr.
To Bank/ vendor A/c
(With the cost of an asset including installation expenses, freight etc.)
(b) Following entries are recorded at the end of each year
(i)
Depreciation A/c
Dr.
To Asset A/c
(With an amount of depreciation)
(ii)
Profit and loss A/c
Dr.
To Depreciation A/c
(With an amount of depreciation)
(2) When provision for depreciation/Accumulated depreciation account is maintained:
Following journal entries are recorded at the end of each year.
(a) Depreciation A/c
Dr
To provision for depreciation A/c
(With the amount of depreciation)
(b) Profit and loss A/c
Dr
To depreciation A/c
(With the amount of depreciation)
64
Illustration 1. Soham purchased a machinery for Rs. 1,00,000 on 1st July, 2009. Another machine
was purchased for Rs. 50,000 on 1st January, 2011. Depreciation is charged at 10% p.a. by straight
line method. Accounts are closed on 31st December each year. Pass the necessary Journal entries,
show machinery A/c and Depreciation A/c for the year 2009, 2010, 2011.
(a) When Provision for depreciation a/c is not maintained.
(b) When Provision for depreciation a/c is maintained.
Solution:
(a) When Provision for depreciation a/c is not maintained.
In the Books of Soham
Journal
Date
2009
July 1
Particulars
Machinery A/c
Dr.
To Bank A/c
(Being machinery purchased for Rs. 1,00,000)
Dec 31
Depreciation A/c
Dr.
To Machinery A/c
Dec 31 (Being depreciation charged to machinery A/c)
2010
Dec 31
Dec 31
L.F.
Dr. (Rs.)
Cr.(Rs.)
1,00,000
1,00,000
5,000
5,000
5,000
5,000
10,000
1
0,000
10,000
10,000
2011
Jan 1
Depreciation A/c
Dr.
To Machinery A/c
(Being depreciation charged to machinery A/c)
50,000
50,000
15,000
15,000
Dec 31
15,000
Machinery A/c
Dr.
To Bank A/c
(Being machinery purchased )
15,000
65
Depreciation A/c
Dr.
To Machinery A/c
(Being depreciation charged to machinery A/c)
Profit and Loss A/c
Dr
To Depreciation A/c
(Being depreciation amount transferred to Profit and
Loss A/c)
Dr.
Date
2009
Jul 1
Machinery A/c
Particulars
To Bank A/c (M-I)
2010
Jan 1 To Balance b/d
2011
Jan 1 To Balance b/d
Jan 1 To Bank A/c( M-II)
J.F. Rs.
Cr.
Date
Particulars
2009
1,00,000 Dec 31
Dec 31
By Depreciation A/c
By Balance c/d
1,00,000 2010
Dec 31
Dec 31
95,000
5,000
95,000
1,00,000
By Depreciation A/c
By Balance c/d
2011
95,000 Dec 31
10,000
85,000
By Depreciation A/c
(M-I 10,000 + M-II
5,000)
By balance c/d
Dec 31
2012
Jan 1 To balance b/d
J.F. Rs.
85,000
50,000
95,000
15,000
1,20,000
1,35,000
1,35,000
1,20,000
Dr.
Date
Depreciation A/c
Particulars
J.F. Rs.
Date
Particulars
Cr.
J.F
.
Rs.
66
2009
Dec 31 To Machinery A/c
2010
Jan 1
2011
Jan 1
To Machinery A/c
2009
Dec 31 By Profit and loss A/c
5,000
5,000
5,000
2010
Dec 31 By Profit and loss A/c
5,000
10,000
2011
Dec 31 By Profit and loss A/c
10,000
To Machinery A/c
10,000
10,000
15,000
15,000
15,000
15,000
Particulars
L.F.
Machinery A/c
Dr.
To Bank A/c
(Being machinery purchased for Rs. 1,00,000)
Dec 31
Depreciation A/c
Dr.
To Provision for Depreciation A/c
Dec 31 (Being depreciation charged to machinery A/c)
Profit and Loss A/c
Dr
To Depreciation A/c
2010
(Being depreciation amount transferred to Profit and
Dec 31
Loss A/c)
Dec 31
2011
Jan 1
Dec 31
Depreciation A/c
Dr.
To Machinery A/c
(Being depreciation charged to machinery A/c)
Profit and Loss A/c
Dr
To Depreciation A/c
(Being depreciation amount transferred to Profit and
Loss A/c)
Machinery A/c
Dr.
Dr. (Rs.)
Cr.(Rs.)
1,00,000
1,00,000
5,000
5,000
5,000
5,000
10,000
10,000
10,000
10,000
50,000
50,000
15,000
67
To Bank A/c
(Being machinery purchased for Rs. 1,00,000)
Dec 31
Depreciation A/c
Dr.
To Provision for Depreciation A/c
(Being depreciation charged to machinery A/c)
15,000
15,000
15,000
Dr.
Machinery A/c
Date
Particulars
2009
Jul 1
2010
Jan 1 To Balance b/d
2011
Jan 1 To Balance b/d
Jan 1 To Bank A/c( M-II)
2012
Jan 1 To balance b/d
J.F. Rs.
Date
2009
1,00,000 Dec 31
1,00,000 2010
Dec 31
Cr.
Particulars
By Balance c/d
1,00,000
1,00,000
By Balance c/d
1,00,000
2011
1,00,000 Dec 31
J.F. Rs.
1,00,000
By balance c/d
1,00,000
1,00,000
50,000
1,50,000
1,50,000
1,50,000
1,50,000
Dr.
Cr.
68
Date
Particulars
J.F. Rs.
Date
2009
Dec 31 To Balance c/d
2009
5,000 Dec 31
2010
Dec 31 To Balance c/d
5,000 2010
Jan 1
Dec 31
15,000
2011
Jan 1
Particulars
By Depreciation A/c
30,000
5,000
5,000
By Balance b/d
By Depreciation A/c
2011
15,000 Jan 1
Dec 31
To Balance c/d
J.F. Rs.
5,000
10,000
By balance b/d
By Depreciation A/c
(M-I Rs. 10,000 + MII Rs. 5,000)
2012
Jan 1
15,000
15,000
15,000
By balance b/d
30,000
30,000
30,000
Dr.
Date
Depreciation A/c
Particulars
2009
Dec 31 To Provision for
Depreciation A/c
2010
Dec 31 To Provision for
Depreciation A/c
2011
Dec 31 To Provision for
Depreciation A/c
J.F
.
Rs.
Date
Particulars
2009
Dec 31 By Profit and loss A/c
Cr.
J.F
.
Rs.
5,000
5,000
5,000 2010
Dec 31 By Profit and loss A/c
5,000
10,000
10,000
2011
10,000 Dec 31 By Profit and loss A/c
15,00
0
10,000
15,000
69
15,000
15,000
Sale of an Asset
(1) On the date of sale of an Asset
Cash / Bank A/c
Dr.
To Asset A/c
(Being an Asset sold)
(2) If case of profit
Asset A/c
Dr.
To Profit and Loss A/c
(Being profit on sale of an asset transferred to profit and Loss A/c)
(3) In case of loss
Profit and Loss A/c
Dr.
To Asset A/c
(Being loss on sale of an asset transferred to profit and Loss A/c)
Illustration 2. Rohan Ltd. purchased a Machinery on 1 st May, 2009 for Rs. 60,000. On 1 st
July, 2010 it purchased another Machine for Rs. 20,000. On 31 st March, 2011 it sold off the
first machine purchased in 2009 for Rs. 39,000. Depreciation is provided at 20% on the
original cost each year. Accounts are closed each year on 31 st December. Show the Machinery
account from 2009 to 2011.
Dr.
Date
Machinery A/c
Particulars
J.F. Rs.
Date
2009
May 1 To Bank A/c (M-I)
2009
60,000 Dec 31
Dec 31
2010
Jan 1
Jul 1
60,000 2010
Dec 31
To Balance b/d
To Bank A/c(M-II)
2011
Jan 1
To Balance b/d
Mar 31 To Bank A/c (MIII)
Mar 31 To Profit and Loss
A/c (profit on sale)
52,000
Dec 31
20,000
2011
Mar 31
Mar 31
72,000
Dec 31
58,000
50,000 Dec 31
2,000
Cr.
Particulars
By Depreciation A/c
By Balance c/d
J.F. Rs.
8,000
52,000
60,000
By Depreciation A/c
(M-I Rs. 12,000 +
M-II Rs. 2,000)
By Balance c/d
(M-I Rs. 40,000 +
M-II Rs. 18,000)
By Bank A/c (Sale)
By Depreciation
A/c(M-I)
By Depreciation A/c
(M-II Rs. 4,000 +
M-III Rs. 7,500)
By Balance c/d
14,000
58,000
72,000
39,000
3,000
11,50
0
70
2012
Jan 1
To balance b/d
56,500
1,10,000
1,10,000
56,500
Working notes:
Calculation of profit or loss on sale of machinery:
Book value as on 1st January, 2011
Less: Depreciation (60,000*20/100*3/12)
Book value as on 31st March, 2011
Less: sale of machinery
Profit on sale of machine
Rs. 40,000
Rs. 3,000
Rs. 37,000
Rs. 39,000
Rs. 2,000
Illustration 3. Suyashi Ltd. purchased on 1st January, 2009 a machinery for Rs. 36,000 and spent Rs.
4,000 on its installation. On 1st July, 2009 another machine purchased for Rs. 20,000. On 1 st July,
2011, machine bought on 1st January, 2009 was sold for Rs. 12,000 and a new machine purchased for
Rs. 64,000 on the same date. Depreciation is provided on 31 st December @ 10% p.a. on the written
down value method. Prepare machinery A/c from 2009 to 2011.
Solution:
Dr.
Date
2009
Jan 1
July 1
2010
Machinery A/c
Particulars
To Bank A/c (M-I)
(36,000 + 4,000)
To Bank A/c
J.F. Rs.
Date
2009
Dec 31
40,000
20,000 Dec 31
60,000 2010
Cr.
Particulars
By Depreciation A/c
(M-I Rs. 4,000 + MII Rs. 1,000)
By Balance c/d
(M-I Rs. 36,000 +
M-II Rs. 19,000)
J.F. Rs.
5,000
55,000
60,000
71
Jan 1
To Balance b/d
Dec 31
55,000
Dec 31
2011
Jan 1
July 1
To Balance b/d
To Bank A/c (MIII)
55,000
2011
July 1
July 1
July 1
49,500 Dec 31
64,000
Dec 31
2012
Jan 1
To balance b/d
By Depreciation A/c
(M-I Rs. 3,600 + MII Rs. 1,900)
By Balance c/d
(M-I Rs. 32,400 +
M-II Rs. 17,100)
By Bank A/c (Sale)
By Depreciation
A/c(M-I)
by Profit and Loss
A/c (profit on sale)
By Depreciation A/c
(M-II Rs. 1,710 +
M-III Rs. 3,200)
By Balance c/d
(M-II Rs. 15,390 +
M-III Rs. 60,800)
1,10,000
5,500
49,500
55,000
12,000
1,620
18,780
4,910
76,190
1,10,000
76,190
Working notes:
Calculation of Profit or loss on machine sold:
Book value of machine sold as on 31st December, 2010
Less: Depreciation (32400*10/100*6/12)
Book value of machine sold as on 1st July, 2011
Less: sale of machine
Loss on sale of machine
Rs. 32,400
Rs. 1,620
Rs. 30,780
Rs. 12,000
Rs. 18,780
Disposal of an Asset:
Under this method a new account is opened named Asset Disposal A/c at the time of sale of an
asset. Following journal entries required for preparation of Asset Disposal A/c
(a) When provision for depreciation A/c is maintained.
(1) Asset disposal A/c
Dr.
To Asset A/c
(With the original cost of asset being sold)
(2) Provision for depreciation A/c
Dr.
To Asset disposal A/c
(Transfer of accumulated depreciation)
(3) Bank A/c
Dr.
To Asset disposal A/c
72
2011
Apr 1
Machinery A/c
Particulars
J.F. Rs.
Date
To Bank A/c
2009
12,00,000 Mar 31
Mar 31
To Balance b/d
12,00,000 2010
Mar 31
Mar 31
10,80,000
To Balance b/d
To Bank A/c
2010
10,80,000 Oct 1
Oct 1
Oct 1
9,72,000 2011
1,58,000 Mar 31
Mar 31
Cr.
Particulars
By Depreciation A/c
By Balance c/d
J.F. Rs.
1,20,000
10,80,000
12,00,000
By Depreciation A/c
By Balance c/d
By Bank A/c (Sale)
By Profit and Loss
A/c (Loss on sale)
By Depreciation A/c
By Depreciation A/c
By Balance c/d
1,08,000
9,72,000
10,80,000
45,000
16,560
3,240
98,620
9,66,580
To balance b/d
11,30,000
11,30,000
73
9,66,580
(b) When provision for depreciation A/c is maintained.
Dr.
Date
2008
Apr 1
Machinery A/c
Particulars
To Bank A/c
J.F. Rs.
Date
2009
12,00,000 Mar 31
Cr.
Particulars
12,00,000
2010
Mar 31
To Balance b/d
By Balance c/d
12,00,000
2010
Apr 1
Oct 1
2011
Apr 1
To Balance b/d
To Bank A/c
2010
12,00,000 Oct 1
12,00,000
1,58,000
12,00,
000
By Balance c/d
12,00,000
2009
Apr 1
J.F. Rs.
2011
Mar 31
By Machine Disposal
A/c
12,00,00
0
12,00,000
By Balance c/d
80,000
12,78,00
0
To balance b/d
13,58,000
13,58,000
12,78,000
Dr.
Date
J.F. Rs.
Date
Particulars
2009
Mar 31 To Balance c/d
2009
1,20,000 Mar 31 By Depreciation A/c
2010
Mar 31 To Balance c/d
1,20,000 2009
Apr 1
2010
2,28,000
Mar 31
Cr.
J.F. Rs.
1,20,000
1,20,000
By Balance b/d
By Depreciation A/c
1,20,000
74
2010
Oct 1
2011
Mar 31
To Machinery
disposal A/c (8,000
+ 7,200 + 3,240)
2011
Apr 1
Oct 1
2,28,000
2011
Mar 31
1,08,000
By Balance b/d
By Depreciation A/c
2,28,000
By Depreciation A/c
To Balance c/d
2,28,000
3,240
18,440 2011
Apr 1
3,11,420
98,620
By Balance b/d
3,29,860
3,29,860
3,11,420
Dr.
Date
Particulars
2010
Oct 1
To Machinery A/c
J.F. Rs.
Date
2010
80,000 Oct 1
Oct 1
Oct 1
80,000
Particulars
By Provision for
Dep. A/c
By Bank a/c (sale)
By Profit and loss
A/c (Loss on sale)
Cr.
J.F. Rs.
18,440
4
5,000
16,
560
80,000
Working notes:
Calculation of profit or loss on machine sold
Cost as on 1st April, 2008
Rs. 80, 000
Less: dep. For 2008-09
Rs. 8,000
Book value as on 1stApril, 2009
Rs. 72,000
Less: dep. For 2009-10
Rs. 7,200
Book value as on 1stApril, 2010
Rs. 64,800
75
Rs. 3,240
Rs.61,560
Rs.45,000
Rs.16,560
(April to October)
Rs. 90,720
Rs. 7,900
Rs. 98,620
(October to March)
Reserves
It is an appropriation of profit
It is created to strengthen the
financial position of business
Provisions
It is charge of profit
It is created to meet known liability
for which the amount is not
determined.
It has no effect on taxable profit
Effect on
It reduces the taxable profit.
taxable profit
Distribution of
It can not be used for dividend
It can be used for dividend
dividend
distribution.
distribution.
Difference between revenue reserve and capital reserve
Basis of
Revenue reserve
Capital reserve
difference
Source of creation These reserves created from revenue
These reserves created from
profits
capital profits
76
Usage
Purpose
Questions
(1)Define Depreciation
(2) State any two causes of Depreciation
(3) Give two methods of providing Depreciation.
(4) Give two examples of provisions.
(5) What is meant by secret reserve?
(6) Which method of depreciation assumes that an asset should be depreciated more in earlier
years and less in the later years of use?
(7) Depreciation cannot be provided in case of loss in a financial year. Comment.
(8) Distinguish between provisions and reserves
Numerical questions
(1) Shyam Ltd. purchased a machinery on 1st May, 2009 for Rs. 60,000. On 1 st July, 2010 it
purchased another machine for Rs. 20,000. On 31 st March, 2011, it sold the first machine
purchased in 2009 for Rs. 38,500. Depreciation provided @ 20% p.a. on the original cost
every year. Accounts are closed 31st December every year. Prepare machinery A/c for three
years.
[Profit on sale of machine Rs. 1,500: Balance of machine on 31 st December, 2011 Rs.
14,000]
(2) The following balances appear in the books of Raghav Ltd. As on 1st April, 2006:
Machine A/c Rs. 5,00,000
Provision for Depreciation A/c Rs. 2,25,000
The machine is depreciated at 10% p.a. on the original cost. The accounting year being
April to March. On 1st October, 2006, a machinery which was purchased on 1st July 2003
for Rs. 1,00,000 was sold for Rs. 42,000 and on the same date a new machine was
purchased for Rs. 2,00,000. Prepare machine A/c and Provision for depreciation A/c for the
year 2006-07.
[Loss on sale of machine Rs. 25,500; Balance of Provision for dep. A/c Rs. 2,47,500;
Balance of machine A/c Rs. 6,00,000]
(3) Reema Ltd. Purchased on 1st on April, 2007 a machinery costing Rs. 30,000. It purchased
another machinery on 1st October, 2007 costing Rs. 20,000 and on 1st July, 2008 costing Rs.
10,000.
On 1st January, 2009 1/3rd of the machinery purchased on 1st April, 2007 became obsolete
and was sold for Rs. 3,000.
Show the machinery account assuming that the companys accounting year is a calendar
year. It is being given that machinery was depreciated by fixed installment method at 10%
p.a. What would be the value of Machinery A/c on 1st January, 2010?
[Loss on sale of machine Rs. 5,250; Balance of machinery On 1 st January, 2010 M-I (2/3)
Rs. 14,500; M-II Rs. 15,500, M-III Rs. 8,500]
77
(4) Ankit Ltd. Purchased a machine on1st April 2006 for Rs. 1,80,000 and spent Rs. 20,000 on
its installation.
On 1st January, 2007, it purchased another machine for Rs. 2,40,000. On 1 st July 2008 the
machine purchased on 1st April, 2006 was sold for Rs. 1,45,000. On 1st October, 2008
another machine was purchased for Rs. 3,60,000.
Prepare Machinery A/c from 2006 to 2008 after charging depreciation @ 10% p.a. by
diminishing balance method. Accounts are closed 31st December each year.
[Loss on sale machine Rs. 13,175; balance of machinery A/c Rs. 5,45,500 M-II Rs.
1,94,400; M-II Rs. 3,51,000]
(5) The following balance appears in the books of M/s. Palak Enterprise.
1st April, 2009
Machinery A/c
Rs. 60,000
Provision for Depreciation A/c
Rs. 36,000
On 1st April, 2009, they decided to dispose off a Machinery for Rs. 8,400 which was
purchased on 1st April, 2005 for Rs. 16,000.
You are required to prepare the Machinery A/c and Machinery Disposal A/c for 2009-10.
Depreciation was charged at 10% on Original Cost Method.
[Balance of machinery A/c on 31st March, 2010 Rs 44,000; Provision for Dep. A/c on 31 st
March, 2010 Rs. 34,000; Loss on sale of machinery Rs. 1,200]
(6) A machinery was purchased for Rs.1,80,000 on 1 st January, 2006. Depreciation was
charged annually@ 10% on written down value method. 1/4 th of this machinery was
sold on 1st July, 2008 for Rs. 36,000. Prepare machinery A/c from 2006 to 2008, if
the books are closed on 31st December each year.
[Profit on sale of machinery Rs. 412; Balance of machinery A/c on 31st December,
2008 Rs. 1,01,150]
Generally students commit the mistakes in these topics
78
UNIT-6
ACCOUNTING FOR BILLS OF EXCHANGE
Unit at a Glance:
Introduction.
Definition of a Bill of Exchange
Features of a Bill of Exchange
Parties to a Bill of Exchange
Advantages of Bill of Exchange
Promissory note
Features of a promissory note
Parties to a promissory note
Distinction between bills of exchange and promissory note
Important terms
Accounting treatment of bill transactions
Generally students commit mistakes please avoid it
Questions
Bills of Exchange are instrument of credit which facilitate the credit sale of goods.
INTRODUCTION
A Bill of Exchange and Promissory Note both are legal Instruments which facilitate the credit
sale of goods by assuring the seller that the amount will be recovered after a certain period. Both of
these are legal instruments under the Negotiable Instruments Act, 1881.
BILL OF EXCHANGE
A Bill of Exchange is an instrument in writing containing an unconditional order signed by the
maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain
person or to the bearer of the instrument. Section 5 of the Negotiable Instrument Act, 1881.
FEATURES OF A BILL OF EXCHANGE ARE
1. A Bill of Exchange must be in writing.
79
Bills of Exchange
The Drawer is the creditor.
2. No. of Parties
4. Acceptance
5. Payee
3. Order or Promise
6. Noting
7. Liability
Promissory Note
IMPORTANT TERMS
1. Term of Bill :
The period intervening between the date on which a bill is drawn and the date on which it
becomes due for payment is called Term of Bill.
2. Due Date :
Due date is the date on which the payment of the bill is due.
Due date is ascertained in the following manner :
(i) In case of Bill at sight Due date is the date on which a bill is presented for the payment.
81
(ii) In case of Bill after Date Due Date = Date of Drawing + Term of Bill.
(ii) In case of Bill after sight
Due date = Date of Acceptance + Term of Bill.
3. Days of Grace :
Drawee is allowed three extra days after the due date of bill for making payments. Such 3
days are known as Days of Grace. It is a custom to add the days of grace.
4. Date of Maturity :
The date which comes after adding three days of grace to the due date of a bill is called
Date of maturity.
Illustration: 1
A bill of exchange for ` 25000 is drawn by A on B on 1st April, 2011 for 3 Months. B accepted
the bill on 10th April, 2011.
Find the DUE DATE and DATE OF MATURITY if
Cash I - The bill is Bill After date
Case II - The bill is Bill After Sight
Solution:
DUE DATE
Date of Maturity
Case I - When the Bill is
Bill After date
1st July 2011
4th July, 2011
Case II When the Bill is
Bill After Sight
10 th July 2011
13th July, 2011
In case a bill is Bill after Sight term of bill starts from the date of acceptance.
5. Bill at sight/Bill on Demand:
When no time for payment is mentioned in the bill of exchange and the bill is payable
whenever it is presented to the drawee for the payment, such bills are known as "Bill at sight" or
"Bill on Demand".
3 days of grace are not allowed when bill is payable on demand.
6. Bill after Date:
Bill after date is the bill in which due date and date of maturity is ascertained from the date on
which the bill is drawn.
3 days of grace are allowed for ascertaining the date of maturity in case of bill
after date.
7. Discounting of Bill:
When the bill is encashed from the bank before its due date, it is known as discounting of
bill. Bank deducts its charges from the amount of bill and disburses the balance amount.
Illustration 2
Ram sold goods to shyam for Rs. 30,000 at credit on 1 st April, 2011. Ram discounted the bill with his
bank on 4th May 2011 @ 9% per annum find out :
82
In this case, Noting of the bill is not required as cancellation of the bill is mutually
agreed upon by both the parties of the bill.
Normally, the drawer charge interest for the period of new bill. The interest may be paid in cash or
may be added in the amount of new bill. If any part payment is made at the time of renewal of a bill,
interest is calculated only on the outstanding amount.
14. Accommodation Bill:
When bills of exchange or promissory note are not drawn to settle a trade between drawer and
drawee but are written for the purpose of mutual help and to raise funds temporarily then it is known
as Accommodation bill.
2. When Bill
is Drawn
3. When Bill is
Cash/Bank A/c Dr.
Honored on Date
To Bills Receivable A/c
of Maturity
(Being payment of bill
received from Drawee)
Case II : When the bill is discounted from the Bank by the Drawer
84
Transaction
In the books of
Drawee
Case III :
When bill is
Transaction
1. When bill is
endorsed
2. When bill is
honoured on date
of maturity
Transaction
1. When bill
is sent
collectin
to Bank
2. When the
amount is realised
on date of
maturity
In the books of
Drawee
No Entry
Bill Payable A/c Dr.
To Cash/Bank A/c
(Being bill paid on date
maturity)
85
Note : There will be no effect in the books of Drawee either the bill is discounted from the
bank or endorsed to a creditor or sent to the bank for collection. The drawee makes the
payment in normal manner.
It is only in the books of drawer where an additional entry is passed to record the effect
of the above transaction.
Illustration: 5
X sold goods to Y on 1st April, 2011 for Rs. 20,000 on credit and drew upon him a bill for the same
amount payable after 3 months. Y accepted the bill and returned it to X. On the date of maturity bill
was presented to Y for the payment and he honoured it.
Pass the Journal Entries in the books of both the parties when :
Case I Bill is retained by the X till the date of maturity.
Case II Bill is discounted by X from his bank on 4th April @ 6% per annum.
Case III Bill is endorsed in favour of Z on 4th May, 2011.
Case IV Bill is sent to Bank for collection on 1st July, 2011.
Also record the Journal Entries in the books of C (Case - III)
Solution:
Date
2011
April, 1
April, 1
July, 4
April, 4
Y A/c
Dr.
To Sales A/c
(Being goods sold to Y on credit)
Bills Receivable A/c
Dr.
To YA/c
(Being acceptance received from Y)
Case I When bill is retained by X
till the date of maturity
Cash/Bank A/c
Dr.
To Bills Receivable A/c
(Being amount received from B
against bill)
Case II When bill is discounted
by X from his bank
Bank A/c
Dr.
Discounting Charges A/c Dr.
To Bills Receivable A/c
(Being the bill discounted
from the bank, discounting Charges are
L.F.
Dr.
Rs.
Cr.
Rs.
20,000
20,000
20,000
20,000
20,000
20,000
19,700
300
20,000
86
ate
Particulars
L.F.
Dr.
Rs.
July, 1
July, 4
May, 4
III
when
bill is Endorsed
(Being amount
realised
from
bill sent
in favour
offor
Z Collection)
Cr.
Rs.
20,000
20,000
20,000
20,000
Z A/c
Dr.
20,000
To Bills Receivable A/c
(Being bill endorsed in favour of Z)
Case IV When bill is sent to bank for collection
20,000
Points to be Remember :
(3) First two entries passed on April 1, 2011 will be same in the books of
X (Drawer) in all the 4 cases.
(4) If a bill is honoured on the date of maturity.
NO ENTRY is passed on the date of maturity in the books of drawer, if :
Bill is discounted from the bank ; or
Bill is endorsed in favour of creditor.
(In all 4 cases)
In the Books of Y (Drawee)
Journal
Date
Particulars
L.F.
Dr.
Cr.
Rs.
2011
April, 1
April, 1
July, 4
Purchases A/c
To X A/c
(Being goods purchased
from X on credit)
X A/c
To Bills Payable A/c
(Being the acceptance
given to X)
Bills Payable A/c
To Cash/Bank A/c
(Being payment made
on date of maturity)
Dr.
Rs.
20,000
20,000
Dr.
20,000
20,000
Dr.
20,000
20,000
(Case - III)
87
Date
2011
May, 4
July, 4
Dr.
Rs.
Cr.
Rs.
20,000
20,000
20,000
20,000
Particulars
L.F.
Dr.
Rs.
Drawee
To Bank A/c
(Including noting charges)
(Being bill discounted from
bank dishonoured )
Cr.
Rs.
Dr.
88
Case III - When bill is endorsed in favour of a creditor (At the time of
Dishonour of a Bill)
In the books of DRAWER
Date
Particulars
L.F.
Dr.
Rs.
Cr.
Rs.
Dr.
Rs.
Cr.
Rs.
Dr.
Rs.
Cr.
Rs.
Drawee A/c
Dr.
To Endorsee A/c
(Including noting charges)
(Being bill dishonoured,
earlier endorsed in favour
of creditor)
Date
Particulars
L.F.
Drawee A/c
Dr.
To Bills Sent for
Collection A/c
To Bank A/c (Noting charges)
(Being bill sent to bank for
collection, dishonoured)
Points to be Remember:
1. Same Entry is passed in the books of Drawee at the time of dishonour of a bill/
(Case-II)
(Case-III)
(Case-IV)
Illustration: 6
A sold good to B on April 1, 2011 for Rs. 20,000 on credit and drew upon him a bill for the same
amount payble after 3 months. B accepted the bill and returned into to A. On the due date bill was
dishonoured.
Pass Journal entries in the books of A and B if Case I : Bill is retained by
A till the date of maturity.,
Case II : Bill is discounted by A from his bank on 4th April, 2011 @ 6% per
annum.
Case III : Bill is endorsed in favour of C on April, 4th, 2011.
Case IV : Bill is sent to bank for collection on July 1, 2011.
Solution :
Date
2011
April, 1
April, 1
To Sales A/c
(Being goods sold to B
on credit)
Dr.
Dr.
Rs.
20,000
Cr.
Rs.
20,000
20,000
20,000
90
July, 4
April, 4
100
July, 4
April, 4
July, 4
12
20,000
20,000
19,700
300
20,000
= 300)
B A/c
Dr.
To Bank A/c
(Being bill discounted from,
dishonoured on date of maturity)
Case - III : When bill is endorsed
in favour of C
C A/c
Dr.
To Bills Receivable A/c
(Being bill endorsed in favour of C)
B A/c
Dr.
To C A/c
(Being bill received from B and
endorsed to C dishonoured on
maturity date)
Case - IV : When bill is sent for
collection
20,000
20,000
20,000
20,000
20,000
20,000
91
July, 1
July, 4
Date
2011
April, 1
April,1
July, 4
Purchases a/c
Dr.
To A a/c
(Being goods purchased on credit)
A a/c
Dr.
To Bills Payble a/c
(Being acceptance given to A)
Bills Payable a/c
Dr.
To A a/c
(Being bill Payable to
A dishonoured on date of
maturity)
20,000
20,000
20,000
20,000
Dr.
Rs.
Cr.
Rs.
20,000
20,000
20,000
20,000
20,000
20,000
Illustration 7
A sold goods to to B on May 1st, 2011 for ` 30,000 on credit and drew
upon him a bill for the same amount payable after 2 months. B accepted the
bill and returned it to A. On date of maturity, B fails to make payment of bill.
Noting charges amounted to ` 100.
Pan Journal Entries in the books of A and B if.
Case 1 : A retains the bill till the date of maturity and also paid the noting charges.
Case 2 : A discounts the bill from his bank on 4th June @ 12% per annum. Noting
charges has been paid by bank.
Case 3 : A endorses the bill n favour of C on June 1. C paid the noting charges.
Case 4 : A sents the bill to his bank for collection on July 1. Bank paid the noting
charges.
Solution :
92
Date
2011
May, 1
May, 1
July, 4
June, 4
B A/c
Dr.
To Sales A/c
(Being goods sold to B on Credit)
Bills Receivables A/c
Dr.
To B A/c
(Being acceptance received
from B)
Case 1 : When A retains the bill
B A/c
Dr.
To Bills Receivable A/c
To Cash A/c
(Being bill dishonourted and noting
charges paid by A)
Cas 2 : When bill is discounted
from the bank
Bank A/c
Dr.
Discounting charges A/c
Dr.
To Bills Receivable A/c
(Being bill discounted from
the bank, discounting charges
amounted to
` = 3000
July, 4
June, 1
Dr.
Rs.
Cr.
Rs.
30,000
30,000
30,000
30,000
30,100
30,000
100
29,700
300
30,000
12 1
= ` 300)
100 12
B A/c
Dr.
To Bank A/c
(Being bill discounted from bank
dishonoured and noting charges
paid by bank)
30,100
30,100
30,000
93
July 4
July, 1
July, 4
Date
2011
May, 1
May, 1
Purchases A/c
Dr.
To A a/c
(Being goods purchased from A)
A a/c
To Bills Payable A/c
Dr.
30,000
30,100
30,100
30,000
30,000
30,100
30,000
100
Dr.
Rs.
Cr.
Rs.
30,000
30,000
30,000
30,000
94
Dr.
30,000
Dr.
100
To A a/c
30,100
Canelling the
Original Bill
Recording
Interest for
In the Books of
In the Books of
Drawer
Drawee
Drawee
Dr.
receivable)
cancelled)
Drawee
Dr.
To Interst A/c
extended period)
Cash or Bank A/c
Received/ made
To Drawee
Interest A/c
Dr.
Drawer
received)
made).
Drawer
To Drawee
(Being a new bill drown)
Dr.
Accepted
Dr.
To Drawer
Past Payment
Dr.
Dr.
95
Illustration - 8 :
On 1st April, 2011 Anil accepts a bill drawn by Sunil for 2 months for Rs. 15000,
in payment of a debt. On the date of maturity bill was dishonoured and Sunil had to
pay Rs. 150 as noting charges. On 4th June 2011, Anil requested to Sunil to draw a
new bill for the amount due. Sunil agreed to draw a new bill for 73 days but he
charged interst @ 15% per annum in cash. This bill is duly met on its maturity.
June, 4
June, 4
Particulars
L.F.
Dr.
Rs.
15,000
Anil A/c
To Interest A/c
(Being interest charged
15 73
= 15150 )
100 365
454.50
Dr.
Cr.
Rs.
15,000
15,150
15000
150
454.50
96
June, 4
June, 4
Aug., 19
Date
2011
April, 1
June, 4
June, 4
June, 4
Cash A/c
Dr.
To Anil A/c
(Being interest received in cash)
Bills Receivable A/c
Dr.
To Anil A/c
(Being a new bill drown M Anil and
acceptance received)
Bank A/c
Dr.
To Bills Receivable A/c
(Being amount received on
maturity of bill)
In the Books of Anil (DRAWEE)
Journal
Particulars
L.F.
454.50
454.50
15,1,50
15,1,50
15,1,50
15,1,50
Dr.
Rs.
Sunil A/c
Dr.
To Bills Payable A/c
(Being acceptance gave)
Bills Payable A/c
Dr.
Noting Charges A/c
Dr.
To Sunil A/c
(Being bill dishonoured and
noting charges due)
15,000
Interest A/c
Dr.
To Sunil A/c
(Being interest payable to Sunil)
454.50
Sunil A/c
454.50
Dr.
Cr.
Rs.
15,000
15,000
150
15,150
454.50
To Cash A/c
454.50
Sunil A/c
Dr.
15,150
15,150
Aug. 19
Dr.
15,150
To Bank A/c
15,150
Illustration 9
P sold goods to Q for ` 10,000 on January 1, 2011 and on the same day draws
a bill on Q for the same amount for 3 months. Q accept it and returns it to P, who
discounts it on 10th January, 2011 with his bank for ` 9850. The acceptance is
dishonoured on the due date and the noting charges were paid by bank being ` 50.
On 4th April, Q paid ` 2,050 (including noting charges) in cash and accepted a
new bill at 3 months for the amount due to P together with interst @ 12% per annum.
Jan., 1
Jan., 10
April, 4
Q A/c
Dr
To Sales A/c
(Being goods sold to Q)
Bills Receivable A/c
Dr.
To Q A/c
(Being acceptance received)
Bank A/c
Dr.
Discounting Charges A/c
Dr.
To Bills Receivable A/c
(Being bill discounted from Bank)
10,000
Q A/c
10,050
Dr.
To Bank A/c
10,000
10,000
10,000
9,850
150
10,000
10,050
April, 4
Cash A/c
Dr.
2050
To Q A/c
2050
Q A/c
Dr.
240
To Interest A/c
240
Dr.
8240
To Q A/c
8240
Journal of Q (DRAWEE)
Date
2011
Jan., 1
Jan., 1
April, 4
Particulars
Purchases A/c
Dr.
To P A/c
(Being goods purchased on credit)
P A/c
Dr.
To Bills Payable A/c
(Being acceptance given to P)
Bills Payable A/c
Dr.
Noting Charges A/c
Dr.
To P A/c
L.F.
Dr.
Rs.
Cr.
Rs.
10,000
10,000
10,000
10,000
10,000
50
10,050
99
P A/c
Dr.
2,050
To Cash A/c
2,050
Interest A/c
Dr.
240
To P A/c
240
P A/c
Dr.
8,240
8,240
In the Books of
In the Books of
Drawer
Drawee
When Drawee
Cash/Bank A/c
Dr.
Rebate A/c
Dr.
before date of
Maturity
Dr.
To Cash/Bank A/c
To Rebate A/c
rebate allowed.
rebate received.)
Points to Remember:100
Particulars
L.F.
Dr.
Rs.
2011
July, 1
July, 1
Aug., 4
Jitender A/c
To Sales A/c
Dr.
30,000
30,000
30,000
30,000
Cr.
Rs.
2
12
29,600
400
30,000
8 = 400)
100
Particulars
L.F.
Dr.
Rs.
Cr.
Rs.
101
July, 1
Purchases A/c
Dr.
30,000
To Mukesh A/c
30,000
July, 1
Mukesh A/c
Dr.
30,000
30,000
Mukesh)
Bill Payable A/c
Dr.
To Cash A/c
To Rebate A/c
(Being acceptance retired with rebate)
E. Insolvency of Acceptor :
Transaction In the books of Drawer
30,000
29,600
400
When Drawee
is Insolvent
To Drawer
up on the case)
When nothing
Dr.
could be
To Drawee
Recovered
Drawer
Dr.
To Deficiency A/c
or
To P &L A/c
(Being the amount of bill
written off.)
When Amount
Cash/Bank A/c
Dr.
is Received
Dr.
Partially
To Drawee
(Being the amount received partially and
the remaining amount written off due to
Insolvency of drawer.)
Drawer
Dr.
To Cash A/ c
To Deficiency A/c
or
To P & L A/c.
(Being the amount payable
Settled by payment of......% only.
Illustration - II
102
Rajiv sold goods to Pankaj for ` 40,000 on January 1st, 2011. On the same
date Rajiv drew a bill of the same amount at 3 month on Pankaj. The bill was
accepted by Pankaj. Rajiv discounted the bill with his bank on 4th February,
2011 @ 12% per annum. On date of maturity, the bill was dishonoured and
noting charges ` 200 were paid by bank.
Pankaj agreed to pay ` 10,200 and accpted another bill for the remaining
amount for 3 months together wih interest @ 9% per annum. On July 4, 2011,
Pankaj becomes insolvent and a first and final dividend of 60 paise in a rupee
was received from his private estate on 15th July, 2011.
Give Journal Entries in the books of Rajiv and Pankaj.
Solution :
Date
2011
Jan, 1
Jan,.1
Feb., 4
April, 4
April, 4
Pankaj A/c
Dr.
To Sales A/c
(Being goods sold on credit)
Bill Receivable A/c
Dr.
To Pankaj A/c
(Being acceptance received)
Bank A/c
Dr.
Discounting Charges A/c
Dr.
To Bill Receivable A/c
(Being bill discounted from
bank and discounting
charges are ` 800 :
12 2
= 40000 )
100 12
Pankaj A/c
Dr.
To Bank A/c
(Being bill dishonoured and noting
charges paid by bank).
Cash A/c
To Pankaj A/c
Dr.
Dr.
Rs.
Cr.
Rs.
40,000
40,000
40,000
40,000
39,200
800
40,000
40,200
40,200
10,200
10,200
103
April, 4
April, 4
July, 4
July, 15
675
675
30,675
30,675
30,675
30,675
18,405
12,270
30,675
Particulars
L.F.
Dr.
Rs.
Cr.
Rs.
2011
Jan, 1
Purchases A/c
Dr.
To Rajiv A/c
40,000
40,000
104
Jan. 1
Rajiv A/c
Dr.
40,000
40,000
Dr.
40,000
Dr.
200
To Rajiv A/c
40,200
Rajiv A/c
Dr.
10,200
To Cash A/c
10,200
Interest A/c
Dr.
675
To Rajiv A/c
675
Rajiv A/c
Dr.
30,675
30,675
Dr.
30,675
To Rajiv A/c
30,675
Rajiv A/c
Dr.
30,675
To Bank A/c
18,405
To Deficiency A/c
12,270
105
GENERALLY STUDENTS COMMIT MISTAKES PLEASE AVOID IT:1. When calculating Date of Maturity the following points must be considered:
3. In case of Bill at sight or Bill on demand 3 days of grace are NOT
allowed.
4. When the term of bill is mentioned in no of days, then
Date of drawing the bill is not included.
Date of payment is included in determining date of maturity .
If date of maturity falls on a day which is public holiday, the maturity date
of the bill shall be PRCEDING DAY.
If maturity date is on an emergent holiday declared under the Negotiable
Installment Act. 1881, the next working day immediately after the holi day
0
Questions
1. State any four essential features of bill of exchange.
2. What is meant by maturity of a bill of exchange?
3. What is meant by acceptance of a bill of exchange?
4. What is Noting of a bill of exchange.
5. What is meant by renewal of a bill of exchange?
6. What is retirement of a bill of exchange?
7. What is meant by insolvency?
8. Give the meaning of rebate.
9. Distinguish between bill of exchange and promissory note.
10. Briefly explain the purpose and benefits of retiring a bill of exchange to the
debtor and the creditor.
Numerical Questions
1. On Jan 15, 2006, Sankar Sold goods for Rs.30,000 to Parvati and drew upon
him three bills of exchanges of Rs.10,000 each payable after one month, two
month, and three months respectively. The first bill was retained by Sankar till
its maturity. The second bill was endorsed by him in favour of his creditor
Ratna and the third bill was discounted by him immediately @ 6% p.a. All the
bills were met by Parvati. Journalise the above transactions in the books of
Sankar and Parvati. Also prepare ledger accounts in books of Sankar and
Parvati.
2. BSNL sold goods worth Rs.19,000 to MTNL on March 02, 2006. Rs.4,000
were paid by MTNL immediately and for the balance she accepted a bill of
exchange drawn upon her by BSNL payable after three months. BSNL
discounted the bill immediately with her bank. On the due date MTNL
dishonoured the bill and the bank paid Rs.30 as noting charges. Record the
necessary journal entries in the books of BSNL and MTNL.
3. Tina and Mina were in need of funds temporarily. On August 01 2005 Tina
drew upon Mina a bill for Rs. 12,000 for 4 months. Mina Accepted the bill and
returned to Tina. Tina discounted the Bill @ 8% p.a. Half amount of the
discounted bill remitted to Mina. On due date, Tina sent the required sum to
Mina, who met the bill. Journalise the transaction in the books of both the
parties.
4. On Jan 01, 2006 Mr. Dalvi sold goods for Rs.20,000 to Mr. Vaghela and drew
upon her a bill of exchange payable after two months. One month before the
maturity of the bill Mr. Vaghela approached Mr. Dalvi to accept the payment
against the bill at a rebate @ 12% p.a. Mr. Dalvi agreed to the request of Mr.
Vaghela and Mr. Vaghela retired the bill under the agreed rate of rebate.
Journalise the above transaction in the books of Mr. Dalvi and Mr. Vaghela.
**************
UNIT :7
RECTIFICATION OF ERROR
To err is human
Unit at a Glance:
Introduction
Error affecting or disclosed by trial balance Meaning of Accounting
Errors not affecting by trail balance
Clerical Errors
Suspense account
Numerical questions
Introduction
Correcting the errors of accounting by passing journal entry is known as rectification of error.
Error affecting or disclosed by trial balance
1. Errors of additions and subtractions :- wrong totaling and balancing of ledger, totaling of
trial wrong totaling of trial balance.
2.Posting at the wrong side of an account :- Instead of debiting amounts by mistake are
written in credit.
3. Entering incorrect amount:- Incorrect copying ,Transposing figure( Writing 56 in place of
65), sliding figure (8000 in place of 800), doubling the wrong figure and duplicate posting.
4. Errors of omission:- Not posted in subsidiary accounts, accounts are not opened in the
ledger.
5. Wrong posting in the trial balance:- Instead of writing debit side accounts has posted in
credit side.
Errors not affecting by trail balance
1. Errors of omission:- Transactions not recorded in books. For example:- goods return to
supplier not recorded.
2.Errors of principle:-Disobey of accounting principles, (salary paid to manager) managers
accounts are debited.
3.Compensating errors: - Sales of goods to Rani for Rs.100 debited to Rain's account with
Rs.10 and Rs.100 cash received for Ajay was credited to Ajay with Rs.10.
4. Incorrect account in the original book: - Insteadof B . Babus accountN.babus account
affected by writer.
5. Posting to wrong account: - Instead of writing in purchases book , sales book are opened.
CLERICAL ERRORS
1. Errors of omission: - Forget to write the transaction in books.
Example:
1. Goods worth Rs.5,000 returned by a customer was not recorded in the books.
2. Goods worth Rs.3,000 sold to Anil was not recorded in the books.
Solution:
Journal Entry
1.
Return Inward A/C
Dr.
5,000
To Customers A/C
5,000
(Being goods returned was not passed in the books ,
now recorded.
2.
Customers A/C
Dr.
3,000
To Sales A/C
3,000
(Being goods sold was not passed in the books , now
recorded.
2. Errors of commission: - Under casting and Over casting.
Example:
1. Purchase book was under cast by Rs.5,000
2. Sales book was over cast by Rs.2,000
Journal Entry ( By Raising Suspense Account)
1.
Purchase A/C
Dr.
5,000
To Suspense A/C
5,000
(Being under casting of purchase book now rectified)
2.
Sales A/C
Dr.
2,000
To suspense A/C
2,000
(Being Over casting of sales book now rectified.
3. Errors of Principles: - Mistake in posting such as instead of sale ,furniture account is
credited, Wages is paid and posted in salary account.
Example:
1. Purchase of Building was passed in purchase book amounting Rs.10,000
2. Wages paid for extension of building was debited to wages account amounting
Rs.6000
Journal Entry
1.
Building A/C
Dr.
10,000
To Purchase A/C
10,000
(Being purchase of building wrongly debited in
purchase account ,is now rectified)
2.
Building A/ C
Dr.
6,000
To wages A/C
6,000
(Being payment of wages for extension of building
wrongly debited in wages account, is now rectified)
4. Compensating errors : - Mistake in posting such as posting at wrong side of account.
Example:
1. Salary paid amounting Rs.500 was credited to salary account.
2. Rent paid amounting Rs.600 was credited to rent account as 60.
Solution:
Journal Entry ( By Raising Suspense Account)
1.
Salary A/C
Dr.
1,000
To suspense A/C
1,000
(Being payment of salary account wrongly credited ,is
now rectified)
2.
Rent A/C
Dr.
660
To suspense A/C
660
(Being payment of account wrongly credited , is now
rectified)
Suspense account
When Trial balance does not agree, the difference of amount will be transferred into suspense
account.
Treatment of Suspense account:-When mistakes are detected and rectified, Suspense
account will be closed. Balance of suspense account will be transferred in to Balance sheet.
Point to be remembered:
(Debit balance of suspense account will be at assets side. Credit balance will be at liabilities
side of balance sheet)
Questions:
1. Explain the types of errors.
2. What do you mean by Suspense account?
Illustration:
Pass journal entry for following cases assuming the use of suspense account
1. Under casting in sales day book by Rs.5,000
2. Goods returned By Amit costing Rs.2,000 was not recorded in the books
3. Salary paid Rs.1500 was debited in wages account.
4. Interest due on investment Rs.2, 500 was not recorded in the books.
Journal Entry
1.
Suspense A/C
Dr.
5,000
To Sales A/C
5,000
****************
UNIT - 8
FINANCIAL STATEMENTS
Unit at a glance:
Meaning of Financial Statements
Users of Accounting information
Capital Nature Items
Revenue Nature Items
Operating Profit and Net Profit
Trading Account
Profit and Loss Account
Balance Sheet
Important Adjustments with their treatments in financial statements
Generally Students commits these mistakes please avoid
Financial Statements of a company shows its financial position for the current
year
Meaning :
The financial statement provide a summary of the accounts of a business enterprise.
Financial statement include two statements include two statements :
i)
Trading and Profit and Loss Account or Income Statement (To Know Profit or
loss)
ii)
Balance Sheet (To know value of assets and liabilities on the closing date of an
accounting period)
To Purchases
To Wages
To Gross Profit
1,57,500
45,000
1,46,250
4,05,000
4,05,000
Question for Practice :
Prepare a Trading Account from the following particulars for the year ended 31 st March, 2011
Rs.
Rs.
Opening Stock
30,000 Wages
18,000
Purchases
1,00,000 Carriage on purchases
3,000
Sales
2,05,000 Manufacturing Exp.
20,000
Factory rent
10,000 Custom Duty
4,500
Purchases returns
3,000 Gas, Fuel and power
12,000
Sales returns
5,000 Dock charges
3,000
Profit and Loss Account :
Profit and loss account is prepared to know the result of the business in the term of net profit
Question for Practice:
Prepare Profit and Loss Account for the year ended 31 st March, 2010 from the following
particulars :
Rs.
Rs.
Gross profit
90,500 Discount allowed
600
Trade expenses
2,400 Lighting
4,100
Rates and taxes
1,200 Interest on investment
500
Carriage outwards
7,500 Commission received
600
Salaries
13,600 Bad debts
1,000
Postage and telegram
2,400 Discount (Cr.)
600
Rent
9,000 Interest on loan
1,800
Legal charges
2,000 Stable expenses
1,600
Audit fee
2,400 Export duty
2,200
Depreciation
2,000 Miscellaneous receipts
200
Donation
500 Unproductive wages
2,100
General expenses
1,500 Travelling expenses
3,500
Selling expenses
4,000
Solution :
Particulars
To Trade expenses
To Carriage outwards
To Salaries
To Postage and telegram
To Rent
To Rates and taxes
To Legal charges
To Audit fee
To Depreciation
To Donation
To General Expenses
To Selling expenses
To Discount allowed
To Lighting
To Bad Debts
To Interest on loan
]To Stable expenses
To Export duty
To Unproductive wages
Amount
90,500
600
600
200
500
To Traveling expenses
To Net Profit transferred to
capital account
3,500
27,000
92,400
92,400
Balance Sheet
The Balance Sheet is a statement prepared for showing the financial position of the business
summarising its assets and liabilities at a given date.
Important Adjustments with their treatments
S.N.
Adjustment
Treatments
1
Closing Stock
:
Credit Side of Trading and Asset Side of B/S
2
Outstanding expenses
:
Add with concerned item in trading or profit and
loss a/c and Liabilities side of B/S
3
Prepaid expenses
:
Less from concerned item in trading or profit and
loss a/c and assets side of B/S
4
Accrued Income
:
Add with concerned income in P&L and Asset Side
of B/S
5
Income
Received
in :
Less from concerned item in P&L A/c and
advance
Liabilities side of B/S
6
Depreciation
:
Dr.Side of P&L A/c & Deduct from concerned
asset in Balance sheet
7
Bad Debts
:
Dr.Side of P&L A/c & Deduct from debtors in B/S
8
Provision for doubtful :
Dr. Side of P&L A/c and Deduct from Debtors
debts
9
Provision for Discount on :
Dr. Side of P&L A/c and Deduct from Debtors
debtors
10
Managers Commission
:
Dr.Side of P&L and Liabilities side of B/S
Ex:
From the following figures prepare Trading and Profit and Loss Account for the year ended
31st March, 2010 and a Balance Sheet as on that date :
Capital
86,800
Purchases
1,86,000
Drawing
15,000
Sales
3,05,000
Investments
14,000
Sales return
5,000
Cash
8,000
Wages
22,000
Rent and Insurance
3,000
Carriage
4,200
Opening Stock
36,600
Bad debts
700
2,100
40,400
25,700
8,000
50,000
11,000
4,400
6,000
6,300
1,000
Adjustments :
1. Stock on 31st march 2010 was Rs. 31,500
2. Salary and wages for March 2010 were unpaid.
3. Rent outstanding amounted to Rs. 600 and insurance unexpired amounted to Rs. 400.
4. Commission amounting to Rs. 200 has been received in advance.
5. Write off Rs. 400 as bad debts, create provision for doubtful debts at 5% on sundry debtors and
provide 2% provision for discount on debtors and creditors.
6. Depreciate furniture and plant and machinery by 10%.
Solution :
Trading and Profit and Loss Account
For the year ending 31st March 2010
Particulars
Amount
Particulars
Amount
To Opening Stock
36,600 By Sales
3,05,000
To Purchases
1,86,000 Less : Sales Return
5,000
3,00,000
To Wages
22,000
By Closing Stock
31,500
Add : Outstanding
2,000
24,000
To Carriage
4,200
To Freight
6,300
To Gross Profit c/d
74,400
3,31,500
3,31,500
To Bad Debts
700
By Gross Profit b/d
74,400
Add : Further Bad Debts
400
By Commission
1,000
New Provision
2000
Less : Unearned
200
800
3100
By Provision for Discount on
Less : Old Provision
2100
1,000
514
Creditors
To Provision for Discount on debors
760
To Salary
11,000
Add:
1,000
12,000
To Advertisement
4,400
To Rent and Insurance
3,000
Add : Outstanding Rent
600
3600
Less :Prepaid Insurance
400
3200
To Depreciation on
Furniture
800
Plant and Machinery
5,000
5,800
To Net Profit transferred to
Capital A/c
48,554
75,714
75,714
Liabilities
Salaries outstanding
Wages outstanding
Outstanding Rent
Unearned commission
Amount
8,000
40,400
400
40,000
Creditors
Less : Prov.for discount
Capital
Add : Net Profit
Less : Drawing
25,700
514
86,800
48,554
1,35,354
15,000
25,186
2,000
38000
Less : Prov. for discount
760
Closing Stock
1,20,354 Insurance Prepaid
Investment
Furniture
8,000
Less : Depreciation
800
Plant and Machinery
50,000
Less : Depreciation
5,000
Goodwill
1,49,340
37240
31,500
400
14,000
7,200
45,000
6,000
1,49,340
2-
3-
4-
Solution :
To calculate Cost of Goods Sold the following formula will be applied :
COGS =
Opening Stock + Net Purchase + Direct Expenses
(Carriage on purchase + wages) Closing Stock
Confusion in calculating operating profit :
Solution:
To calculate operating profit the following formula will be
used :
Operating Profit =
Net Profit + Non Operating
Expenses Non Operating Incomes
Marshalling and Grouping of Assets and Liabilities :
Solution :
Arrangement of assets and liabilities in a particular order is known as
marshalling.
Provision for Bad Debts :
First of all deduct bad debts given in adjustment from the debtors
Calculate provision for doubtful debts on the amount of debtors
Deduct the amount of provision for doubtful debts given in credit side of trial balance
4. Prepare Final Accounts of Mr. Sharad for theyear 31-3-09. Trial Balance 31-3-09
Particulars
Amount
Particulars
Stock
20,000 Capital
Purchases
2,92,000 Sales
Duty and clearning charges
34,000 Rent
Rent
10,000 Creditors
Return inwards
16,000
Discount
15,000
Drawings
58,100
Goodwill
16,000
Furniture and Fittings
58,000
Repairs
2,900
Bank
24,000
General expenses
18,000
Salaries
1,10,000
Debtors
2,30,000
9,04,000
Amount
1,60,000
5,90,000
19,000
1,35,000
9,04,000
Adjustments :
1. General expenses include Rs. 5,000 chargeable to furniture pursed on ist October 1998.
2. Create a reserve of 5% on Debtors for Bad and Doubtful debts after treating Rs. 30,000 as a Bad
Debt.
3. Balance at Bank as ascertained from the pass book is Rs. 22,500, the difference representing bank
charges.
4. Rent for 2 months is outstanding.
5. Depreciate furniture and fittings @ 10% p.a.
6. Closing Stock was Rs. 40,000. There was a loss by fire on 20 th March to the extent of Rs. 8,000.
Insurance Company admitted the claim in full.
7. Goods costing RS. 2,500 were used by the proprietor.
8. Goods costing Rs. 1,500 were distributed as free samples.
Ans. G.P. 2,80,000, N.P. 97050 B/S 3,33,450
5. From the following Trial Balance of Mr.Sarthak for the year ended 31 st March 2011.. Prepare Final
Accounts.
Particulars
Amount
Amount
Capital
2,73,000
Furniture and fittings
48,100
Cash at Bank
73,230
Land and Building
4,94,000
Stock
10,530
Debtors and Creditors
84,890
26,780
Purchase and Sales
3,55,790
6,77,120
Carriage outwards
4,030
Salaries
54,210
General expenses
31,200
10% Loan (1-4-2010)
2,60,000
Returns
1,690
1,430
Rent
1,820
Wages
71,170
Interest
13,000
Bills Payable
8,970
Electricity Charges (Factory)
3,640
12,47,300 12,47,300
Additional Information :
1. Goods costingRs. 5,200 were taken by Sarthan for the personal use.
2. Salaries include Rs. 2,210 paid for the year ending 31-12-2012.
3. The debtors include Rohan who owned us Rs. 1,690 and has become insolvent and nothing is
recoverable from his estate.
4. General expenses include Rs. 2,600 paid for wages.
5. Create a provision for doubtful debts @ 5% p.a.
6. Depreciate land and building @ 10% p.a. and furniture and fittings @ 20% p.a.
7. Closing stock was valued at Rs.20,280.
(Ans. G.P. Rs. 2,58,610 N.P. Rs. 81,290, Balance Sheet Rs.6,57,840)
************
UNIT-09
ACCOUNTING FOR NOT FOR PROFIT ORGANISATIONS
Unit at a Glance : Meaning
Features of NPO
Final Accounts of NPO
Difference between Receipts & Payments A/c & Income &
Expenditure A/c.
Calculation of Subscriptions
Fund based Accounting
Calculation of Material Consumed
Comprehensive Illustrations
Mistakes generally committed by students
Practice Questions
1. Meaning of NPO :Non profit organizations are those organizations which are
established for a Social/Charitable/Cultural purpose & not
for earning profit. They render services for the promotion of
Art, Culture, Sports, Education & Healthcare etc.
2. Features of NPO :a) They are registered distinct entities
b) They render services to the society at nominal charges
3.
4. Distinction between Receipts & Payments A/c & Income & Expenditure A/c :-
Basis
1.Nature of A/c
2. Form
3. Basis
4. Period
5. Revenue &
Capital Items
6. Balance sheet
7. Opening &
Closing balance
8. Adjustments
Rs.
50,000
8,000
6,000
Calculate the amount of subscription to be credited to Income & Expenditure a/c for the yr.
2007-08.
Ans.1
Rs.
Subscription received during the yr.
50,000
Add: Subscription outstanding on 31-3-08
8,000
--------58,000
Less: Subscription outstanding on 1-04-07
6,000
--------Amount to be credited to Income & Expenditure A/c =====
52,000
---------
Illustration : - 2
Rs.
Rs.
1,50,000
3,800
4,500
---------1,58,300
5,100
4,000
--------
9,100
-----------
Rs.1,49,200
----------Calculation of expenses for the year for Income & Expenditure a/c.
Note : Here too, it is important to understand that - the guiding principle is - that the expenses of
the current year whether paid or not should be considered. Similarly expenses of previous or
future period though paid in the current year should be excluded.
The following Illustration shall clarify the concept further.
Illustration :- 3
Ascertain the amount of salary chargeable to Income & Expenditure A/c for 2006-07
Rs.
Total salaries paid in 2006-07
10,200
Prepaid salaries on 31-3-2006
Prepaid salaries on 31-3-2007
Outstanding salaries on 31-3-2006
Outstanding salaries on 31-3-2007
Ans. 3
Total Salaries paid in 2006-07
Add: - Outstanding salaries on 31-3-07
Prepaid salary on 31-3-06
1,200
600
900
750
Rs.
10,200
750
1,200
--------------12,150
900
600
-----Salaries dr. to Income & Exp. A/c for 2006-07
1,500
--------------10,650
Capital Fund
xxx
21,00,000
21,00,000
6% Prize Fund
Investment
xxx
25,00,000
21,00,000
4,00,000
25,000
5,000
30,000
Add: Accrued Interest 1,500
31,500
Less: Prizes awarded
6,000
--------
Auditorium in
Progress
Prize Fund :
Add: Donation
25,000
Accrued Interest
on Prize fund
investment
1,500
25,500
1,000
1,500
4,150
5,150
1,500
3,650
Creditors and Payments made for such items during the year are given.
Illustration 6.
Case 2.
When
Opening &
Closing
Stock,
Opening &
Closing
Ans. Illustration 6 :
Purchase of Sports Material during the yr:
Rs.
Total payments made during the yr. for sports material Less: Creditors on 1/4/2006
Add: Creditors on 31/3/2007
Sports material purchased during the year
Sports goods consumed during the yr.
Opening stock
Add: Purchases during the yr.
Less: Closing stock
Sports material consumed
19,000
2,000
--------------17,000
2,600
-------------19,600
-------------Rs.
7,500
19,600
--------------27,100
6,400
--------------
20,700
---------------
Comprehensive Problems:
Illustration 7 :From the following particulars of M/s. Jalaram Charity Hospital, prepare Income & Expenditure
a/c & the balance sheet as on 31st March 2007.
Receipts
To Cash in hand 1/4/06
To Subscriptions
To Donations
Additional
To
Interest on
information:
Bank Fixed Deposit For full yr.
Rs.
7,130
47,996
14,500
7,000
10,450
87,076
Payments
Rs.
By Medicines
30,590
By Doctors Honorarium
9,000
By salaries
27,500
Petty expenses
1/4/2006 31.3.2007461
By Equipments
Rs.
Rs. 15,000
By charity show expenses
750
Cash in hand 31/3/2007
3,775
87,076
Subscription due
Subscription received in advance
Stock of medicines
Estimated value of equipment
240
64
280
100
8810
21200
9740
31600
40000
38000
Ans. 7.
Income & Expenditure A/c
(Year ended on 31st March 2007)
Expenditure
To Medicines consumed
Opening stock
8810
Add: Purchases
30590
Less: Closing. stock 9740
Rs.
29660
To Doctors honorarium
9000
To salaries
27500
To petty expenses
461
To expenses charity show
750
To Depreciation: Equipment 4600
Building
2000
To Surplus
5979
Income
Rs.
By Subscriptions
47996
Add: O/S ( of 2007 )
280
Adv in 2006
64
Less: O/S ( of 2006 )
240
Adv of 2008
100 48000
By Donations
14500
By Interest on Bank FD
7000
By charity show proceeds
10450
79950
Liabilities
Advance Subscription
Capital Fund 177316
Add: Surplus
5979
79950
Rs.
3775
280
9740
100000
- Depreciation
4600
Building
- Depreciation
40000
2000
31600
38000
183395
183395
Rs.100000
7
2. Depreciation has been calculated on the basis of :
(Opening balance of the Asset + Purchases of Assets during the yr.)
- the Closing balance of the Asset
ILLUSTRATI ON 8 :
Prepare Income & Expenditure A/c & Balance Sheet of Leo Club Mumbai for the yr. ended 31st
Dec. 2007 from the following:
Receipts & Payments A/c
(Year ended 31-3-2007)
Receipts
Rs.
Payments
Rs.
Cash in hand b/d
4500
Salaries (11 months)
1100
Subscriptions: 2006 100
Tournament exp.
1600
2007- 2400
2008 - 200
2700
140
2000
10000
Investments
Furniture
Stationery
Sports expenses
Misc. expenses
1000
400
1200
15000
200
3000
22340
1400
440
22340
The club has 300 members each paying an annual subscription of Rs.10.
Rs.70 are still outstanding for the yr.2006. In 2006, 10 members had paid their subscription for
2007 in advance. Stock of stationery in 2006 was Rs.100 & in 2007 Rs.140.
On 1-1-2007, club owned Land & Building valued at Rs.20,000 & furniture of Rs.1300. Interest
accrued on investment @6% p.a. for 3 months.
Ans. 8
Income & Expenditure A/c
(Year ended 31st Dec.2007)
Expenditure
To Loss on sale of furniture
Rs.
Income
Rs.
60 By Subscriptions
2700
Less: O/s (2006)
100
Less: Advance (2008) 200
Add: Advance (2006) 100
Add: O/s
500 3000
To sports expenses
To Salaries
1100
Add: Outstanding
100
To Tournament exp.
To stationery Op. Stock 100
Add: Purchases
1200
Less: Closing stock
140
To Misc. Exp.
To Rent
1400
Less: Prepaid
200
2000
By Tournament Receipts
1200 By Accrued interest
1600 By Deficit
2000
15
2405
1160
200
1200
7420
7420
Balance Sheet as at
31.12.2006
Assets
Cash in hand
Subscription o/s
Rs.
4500
170
Stock of
stationery
Furniture
100
1300
20000
26070
Rs. 50,000
Rs. 40,000
Rs. 2,00,000
Rs.
20,000
Rs.
10,000
31.12.2012(Rs.)
Outstanding Subscription
9500
10000
6200
8700
Rs.2,50,000
(Ans. Rs. 2,48,000)
3. From the following prepare Income & Expenditure a/c for the yr. ended 31.3.12 &
ascertain the Capital fund on 31.3.2011
Receipts
Balance b/d
To Subscriptions
2009-10 - 2400
2010-11 -53000
2011-12 - 1000
To Sale of scrap
Amount Rs.
39100
To Govt. Grants
20000
11400
56400
2500
900
130300
Payments
By Salary
By Newspaper
Amount Rs.
6000
4100
By Electricity
charges
By Fixed Deposit
(on 1/7/2011
@9% p.a.)
By Books
By Rent
By Furniture
By Balance c/d
2000
40000
21200
13600
21000
22400
130300
Additional Information:
1. Subscription outstanding as on 31.3.2011 Rs.4000 & on 31.3.12 Rs.5000
2.
3. On 31.3.12 Salary outstanding Rs.1200 & Rent outstanding Rs.2400
4.
*************
UNIT:10
ACCOUNTS FOR INCOMPLETE RECORDS
A system of book-keeping in which, as a rule, only records of cash and of personal accounts are
maintained, it is always incomplete double entry system, varying with circumstances
Unit at a Glance:
Introduction
Salient features
Uses
Limitations
Difference between double entry system and incomplete records
Ascertainment of profit or loss from incomplete records
Conversion into double entry method
numerical exercises
Introduction:
Accounting records which are not prepared in accordance with double entry system
method are described as accounts for incomplete records.
SALIENT FEATURES
1. Apply of personal accounts only ( ignores nominal and real accounts)
2. Maintenance of cash book.( Cash book is prepared )
3. Based on original vouchers. (Collection of data is made with original vouchers)
4. Lack of Similarity. (Method of preparation of books differs from firm to firm, it prepared
as per the need of the business.
5. Preparation of final accounts. (After converting the information into double entry system
final accounts are prepared. Due to this Statement of affairs is prepared instead of
Balance sheet)
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
6.
7.
8.
Uses
Easy method (Not requires any specific knowledge)
Economical( Can be prepared by without having more staff)
Suitable for small concerns (Few assets and liabilities are to be recorded)
Not rigid (Can be modified/changed as per requirement of business)
Easy finding of profit & losses. (Only opening and Closing capital is required)
Limitations
Impossible to find fraud (As Trial balance is ignored)
Incomplete system (No set rules are followed)
Unable to find adequate profit & losses. (Ignorance of nominal accounts)
Difficulty in preparation of balance sheet.(Lack of valuation of goodwill)
Unable to retain full control on asserts. (Real accounts are ignored, it is difficult to make
full control on assets)
Unsuitable for planning in control(Lack of reliable figure)
Lack of internal checking(Fails to adopt double entry system)
Improper evaluation of asserts (Ignorance of certain information like depreciation etc.)
5. Adjustment (Adjustment are considered in double entry ,while adjustments are not
considered in incomplete records)
ASCERTAINMENT OF PROFIT OR LOSS FROM INCOMPLETE RECORDS
1. Statements of affairs method
2. Conversion into double entry method
Statement of affairs method: Under this method Opening and Closing capital is calculated.
Then statement of profit is prepared to find profit/loss during the year.
Format of Statement of affairs
Statement of affairs
(As on ---------------------)
Liabilities
Amount Assets
Amount
Bank overdraft
Bills payable
Sundry creditors
Outstanding expenses
Incomes received in
advance
Capital(being, balance
figure)
Cash in hand
Cash in bank
Bills receivable
Sundry debtors
Stock
Prepaid expenses
Accrued income
Furniture
Plant & machinery
.............. etc.
...............
---------------
Example:
Mr. Ramesh,the owner of a mobile shop maintains incomplete records of his business. He wants
to know the result of the business in 31stDec. 1998 and for that following information are
available:
1st Jan, 1998
31st Dec, 1998
Cash in hand
300
350
Bank balance
1500
1600
Furniture
200
200
Stock
1000
1300
Creditors
700
800
Debtors
500
600
During the year he had withdrawn Rs.1000 for his personal use and invested Rs.500 as additional
capital. Calculate his profit on 31st Dec, 1998.
SOLUTION:
Statement of affairs
As on 1st January, 1998
Liabilities
Amount Assets
Amount
Rs.
Rs.
Creditors
700 Cash in hand
300
Capital(balance figure)
2,800 Bank balance
1500
(Opening capital)
debtors
500
Stock
1000
Furniture
200
3,500
3,500
Statement of profit
For the year ending 31st December, 1998
Closing capital as on 31-12-1998
Add: drawings
Less: further capital introduced
Less: opening capital as on 1-1-1998
Profit for the year
Rs.
3,250
1,000
4,250
500
3,750
2,800
950
Points to be remembered: If opening capital is given but closing capital is not given, only one
statement of affairs will be prepared to find closing capital.
Conversion into double entry method: Under this method following steps are made :
1. Opening of statement of affairs
2. Preparation of subsidiary.
3. Opening of others account like debtors account.
Format of debtors A/c
Total debtors account
Dr.
Cr.
Rs.
To balance b/d
(opening balance of
debtors)
To B/R Dishonored
To cash refund to
debtors
To credit sales, if
given (if not given
balancing figures is
credit sales)
..........
..........
..........
..........
Rs
By cash received
from debtors
By B/R received
By sales returns
By discount allowed
By bad-debts
By balance c/d
(closing balance of
debtors, either given
or balancing figures)
..........
..........
..........
..........
.........
..........
..........
..........
..........
Rs
By balance b/d
(opening balance of
creditors)
By B/P Dishonored
By B/R endorsed
dishonored
By Credit Purchase,
if given (if not given
balancing figures is
Credit Purchase)
..........
..........
..........
..........
.........
Example:
Find out credit and total purchases from the following particulars:
Rs.
60,000
48,000
2,40,000
80,000
10,000
7,200
17,000
4,000
6,000
2,400
Solution:
Creditors Account
Rs.
To cash paid
2,40,000
To Bank
80,000
To Purchase returns
10,000
To discount received
7,200
To B/P accepted
17,000
To B/R endorsed
6,000
To balance c/d
48,000
(closing creditors)
By balance b/d
By B/P Dishonored
By B/R endorsed
dishonored
By Credit Purchase
Rs
60,000
4,000
2,400
3,41,800
On 1st Jan, 2000, The Following Balances were Recorded: Building Rs.5,000; Stock Rs. 3,600;
Debtors Rs.10,600 And Creditors Rs.3,000.
The Balances On 31st Dec, 2000were: Debtors Rs.12,000; Building Rs.5,000; Creditors Rs.3,800
And Stock Rs.5,200.
Allow 5% Depreciation On Building. Provide Interest in CS Loan for Six Months. Prepare
Trading,
Profit And Loss Accounts and Balance Sheet on 31-12-2000
Answer:
1.
2.
3.
4.
5.
6.
Q.2 Dr. Man Mohan maintains incomplete records. His accounts on 31st December 2005 were as
follows:
Liabilities
Amount Assets
Amount
Rs.
Rs.
Bills payable
20,000 Stock
3,00,000
Sundry Creditors
2,40,000 Cash
40,000
Capital
6,80,000 Bank balance
1,00,000
Bills received
1,40,000
Sundry debtors
2,40,000
Furniture
1,20,000
9,40,000
9,40,000
During the six months ended 30th June, 2006 his position was as follows:
(i)
His cash position improved by Rs.20,000 the bank balance was as Rs.1,00,000.
(ii)
Stock decreased to Rs. 2,60,000 and debtors reduced by Rs.40,000.
(iii)
Sundry creditors were the same as on 31st Dec, 2005.
(iv)
There was no bills payable outstanding.
(v)
The balance of the furniture was Rs.70,000 (Furniture costing Rs.50,000 was sold for
Rs. 40,000)
(vi)
The furniture was sold on 30th June, 2006. It was estimated that furniture depreciated during the
period @10%p.a. of the original cost.
From the above information calculate Profit or Loss of Dr. Man Mohan` and also prepare his
final statement of affairs.
Answer: Closing capital Rs.5,90,000, Net loss Rs.93,500. Total of final statement of affairs
Rs.8,26,500
Q.3. From the following information are given of an accounting year:
1. Opening creditor Rs.10,000
2.Cash paid to creditors Rs.30,000
3. Return out ward Rs.2,000
4.Closing creditors Rs.24,000
Calculate credit purchase during the year.
Answer: Credit purchase Rs.46,000
**************
Unit:11
Computers & Accounting Information System
Unit at a Glance : Meaning of Computer
Components of a Computer
MIS & AIS
Advantages of Computerized AIS
Limitations of Computerized AIS
Role of Computers in Accounting
Customized & Readymade Software
Database & DBMS
Structured Query Language
Practice Questions
According to International Standards Organization
A Computer is a data processor that can perform substantial computations, including
numerous arithmetic & logical operations, with intervention by a human operator during the
run.
Components of a Computer
1. Input Devices : Such as Keyboard, Mouse etc.
2. CPU: It has three components The control unit, memory unit and the logical unit.
3. Output Devices: Such As Monitor, Printer.
4. Hardware & Software
The System Software such as MS DOS, Windows 7 etc.- are a set of programs which control
the operations & help processing.
The Application software such as MS Word, Tally etc. enables the user to perform useful
specific functions.
Management Information System (MIS): Is an information system that provides the
needed information to the managers to manage the organization effectively. It combines the
three resources viz; technology, information & people for the efficient management of an
enterprise.
Accounting Information System (AIS): Is an information system based on the accounting
database of an organization, helping in storage, processing, summarizing & reporting
information about an organization.
It has 3 elements viz: Computerized Accounting, Information and System.
Advantages of Computerized AIS :
1.
2.
3.
4.
Computerized accounting serves this purpose by using both the AIS & MIS very effectively by
combining the following :
1. Customer Relationship Management (CRM)
2. Debtors Management
3. Inventory Management
4. Supply Chain Management
5. Payroll Accounting
6. Enterprise Resource Planning (ERP)
7. Enterprise Performance Management (EPM)
8. Computerized preparation of Financial Statements
9. Tax Planning & Management
10. Sales & Marketing Management
Readymade Software
It saves time as it readymade
It is cost effective as money is
not to be spent on its
development
Is promptly available because of
well developed professionals as
well as market
It is readily available in the
market
Customized Software
It takes time for development
It is costlier
Has to depend on the programmer who
has developed the package specially for
the needs of the firm
It is not readily available as it is tailor
made to the firms need.
Advantages of DBMS :
1. Reduced Data Redundancy
2. Protection of information
3. Greater Consistency
4. Reduced Costs
5. Back-up & Recovery facility
Limitations of DBMS:
1. High setting up costs
2. Lack of Expertise Knowledge
3. Security Problems
4. Hardware & Software costs due to fast obsolescence
Structured Query Language
It is a 4th generation Computer Programming language which greatly facilitates the writing of
a program or application by the programmer in one tenth of time taken in older & third
generation language like COBOL.
Practice Questions
1. Explain the components of a Computer.
2. What is a computer?
3. What is MIS?
4. What is AIS?
5. What are the advantages of AIS?
6. Which of the two is better Ready-made Accounting Software or Customized
Accounting Software? Give reasons in support of your answer.
7. What is database?
8. What is DBMS?
9. What is the role of computers in accounting?
10. What is the difference between Manual & Computerized Accounting
system.
11. What is SQL ? (Structured Query Language)
--------------------------------------------